<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1997
REGISTRATION NO. 333-25439
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AXIOM INC.
(successor by merger to Securicor Telesciences Inc.)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3669
(State or other jurisdiction (Primary Standard Industrial 51-0356153
of Classification Code Number) (I.R.S. Employer
incorporation or organization) Identification
No.)
</TABLE>
351 NEW ALBANY ROAD, MOORESTOWN, NJ 08057-1177, (609) 866-1000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ANDREW P. MAUNDER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AXIOM INC.
351 NEW ALBANY ROAD
MOORESTOWN, NJ 08057-1177
(609) 866-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPY TO:
JASON M. SHARGEL, ESQUIRE BARBARA L. BECKER, ESQUIRE
Wolf, Block, Schorr and Solis-Cohen Chadbourne & Parke LLP
Twelfth Floor Packard Building 30 Rockefeller Plaza
S.E. Corner 15th & Chestnut Streets New York, NY 10112
Philadelphia, PA 19102 (212) 408-5100
(215) 977-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As promptly as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ---------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ---------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a prospectus relating to an offering in
the United States and Canada (the "U.S. Offering") of an aggregate of 2,392,000
shares of Common Stock, par value $0.01 per share, of Axiom Inc. together with
separate prospectus pages relating to a concurrent offering outside the United
States and Canada of an aggregate of 598,000 shares of Common Stock, par value
$0.01 per share, of Axiom Inc. (the "International Offering"). The complete
prospectus for the U.S. Offering follows immediately after this Explanatory
Note. Following such prospectus are the alternate front cover and back cover
pages for the International Offering. All other pages of the prospectus for the
U.S. Offering are to be used for both the U.S. Offering and the International
Offering. The complete prospectus for each of the U.S. Offering and the
International Offering, in the forms in which they are to be used after
effectiveness, will be filed with the Securities and Exchange Commission via
EDGAR pursuant to Rule 424(b) under the Securities Act of 1933.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 3, 1997
PROSPECTUS
2,600,000 SHARES
[LOGO]
(SUCCESSOR TO SECURICOR TELESCIENCES INC.)
COMMON STOCK
--------------
All of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by Axiom Inc. (the "Company"), the
successor to Securicor Telesciences Inc. Of the 2,600,000 shares of Common Stock
offered hereby, are initially being offered in the United States and Canada
by the U.S. Underwriters (the "U.S. Offering") and are initially being
offered outside the United States and Canada by the International Managers (the
"International Offering" and, together with the U.S. Offering, the "Offering").
See "Underwriting." The initial public offering price and underwriting discounts
and commissions are identical for both the U.S. Offering and the International
Offering. The closing of the U.S. Offering is a condition to the closing of the
International Offering and the closing of the International Offering is a
condition to the closing of the U.S. Offering. Of the net proceeds from the sale
by the Company of the Common Stock, approximately $20.4 million will be used to
repay certain indebtedness from the Company's sole stockholder. See "Use of
Proceeds" and "Certain Transactions."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Common
Stock has been approved for quotation on The Nasdaq National Market ("Nasdaq")
under the symbol "AXIM."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share............................. $ $ $
Total (3)............................. $ $ $
</TABLE>
(1) The Company and an affiliate of its sole stockholder have agreed to
indemnify the U.S. Underwriters and the International Managers against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting estimated expenses of $925,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters and the International Managers
30-day options to purchase up to an aggregate of 390,000 additional shares
of Common Stock on the same terms and conditions as set forth above solely
to cover over-allotments, if any. If such options are exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively. See
"Underwriting."
---------------------
The shares of Common Stock offered by this Prospectus are offered by the
U.S. Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain further conditions. It is expected that
delivery of certificates for the shares of Common Stock will be made at the
offices of Lehman Brothers Inc., New York, New York, on or about , 1997.
---------------------
LEHMAN BROTHERS J.P. MORGAN & CO.
, 1997
<PAGE>
[Description of graphics to be inserted:
1. Outer flap of gatefold: Representation of a world map with stars marked
to show the locations of customers of the Company's products and services during
the preceding eighteen months. Large caption above the map setting forth the
Company's name and the phrase "absolute value." A box appears below the map
containing the following text: "Leaders in Serving Global Telecommunications
with: Collection, Preprocessing and Delivery of Billing and Transaction Data;
Traffic Management Reporting."
2. Innerflap of gatefold: graphical representation of the Company's
products, showing how they can be used together as a system in conjunction with
the customer's billing data, network data and management applications. In the
box identifying the Company's products, the Company's name appears together with
the phrase: "absolute value."]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE TRANSACTIONS, SEE
"UNDERWRITING."
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS OF THE COMPANY AND THE PREDECESSOR
BUSINESS (AS DEFINED BELOW UNDER "THE COMPANY") AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN
THIS PROSPECTUS REFLECTS THE FOLLOWING: (I) A 34,769-FOR-ONE STOCK SPLIT (IN THE
FORM OF A STOCK DIVIDEND) OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER
SHARE (THE "COMMON STOCK") WHICH WILL BE EFFECTED PRIOR TO THE COMPLETION OF THE
OFFERING AND (II) NO EXERCISE OF THE OVER-ALLOTMENT OPTIONS GRANTED TO THE U.S.
UNDERWRITERS AND THE INTERNATIONAL MANAGERS (COLLECTIVELY, THE "UNDERWRITERS").
SEE "UNDERWRITING." AXIOM, AXIOM ABSOLUTE VALUE, MANIFEST, STERLING AND THE
STERLING FAMILY OF MARKS ARE TRADEMARKS AND SERVICEMARKS OF THE COMPANY. AS USED
IN THIS PROSPECTUS, THE TERM "FISCAL 1994" REFERS TO THE PREDECESSOR BUSINESS'
FISCAL YEAR ENDED JUNE 30, 1994, AND THE TERMS "FISCAL 1995," "FISCAL 1996" AND
"FISCAL 1997" REFER TO THE COMPANY'S FISCAL YEARS ENDED SEPTEMBER 30, 1995,
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1997, RESPECTIVELY.
THE COMPANY
The Company is a leader in providing comprehensive billing data collection
solutions to providers of local, long-distance and other advanced
telecommunications services. The Company's largest customers include Regional
Bell Operating Companies ("RBOCs"), such as Ameritech Corporation, Southwestern
Bell Telephone Company and U S West, Inc., and international providers of
telecommunications services, such as Telecom Argentina. The Company develops,
markets and supports integrated hardware and software systems that are able to
collect and process an increasing volume of transaction information from a wide
variety of wireline telecommunications switches and transmit this information to
the customer's information management networks. The Company also is developing
systems that process transaction information from wireless, asynchronous
transfer mode ("ATM") and other specialized telecommunications switches. The
Company's customers use this information to bill their subscribers, to implement
customized marketing programs and to perform other data management functions.
The Company also provides traffic management solutions to telecommunications
companies such as TELESP, a Brazilian telecommunications service provider. The
Company recently introduced its first applications software product, a fraud
detection and management system. The Company provides installation, ongoing
maintenance, support and training, as well as customized engineering services,
related to the Company's systems.
The telecommunications industry is currently experiencing rapid growth and
change resulting from the combined effects of regulatory, competitive and
technological developments. Regulatory changes, including the Telecommunications
Act of 1996, have created competitive wholesale and retail telecommunications
markets and have required RBOCs and other wholesalers to provide to retail
resellers detailed call data that previously were not required to be captured.
To comply with regulatory requirements and to be successful in increasingly
competitive markets, telecommunications providers are being required to upgrade
their existing data collection systems to new systems that can process large
volumes of transaction information without compromising the integrity of the
billing stream and can efficiently transmit the information for use by
increasingly sophisticated and varied data management applications. The growing
number and categories of telecommunications providers is creating a need for
more sophisticated data management systems that utilize call data as part of
marketing and other information management programs. Escalating competition has
also created the need for systems that can provide real-time access to call
data.
The Company believes that it provides to large wireline customers the most
advanced and reliable billing data collection systems and that it is the leader
in designing these systems to meet the Automatic Message Accounting Data
Networking System ("AMADNS") generic requirements established in 1994. A
critical feature of the Company's systems is redundancy, permitting them to
protect the integrity of call detail records ("CDRs") and provide "financial
grade" reliability (greater than 99.999% system availability). The Company's
products also are capable of delivering transaction information on a real-time
basis. Reflecting the engineering expertise acquired through the Company's
30-year history, the Company's
3
<PAGE>
products offer a high degree of connectivity, permitting them to interface with
switches from all major domestic and most international wireline switch
manufacturers, including Northern Telecom Inc., Lucent Technologies Inc.,
Siemens AG, L.M. Ericsson Telephone Co. and NEC Corp. The Company's systems
utilize an open systems architecture, permitting them to interface with other
elements of the customer's data collection network and with virtually any
billing processing or other information management application. The Company's
systems also are scaleable, thereby allowing them to handle a large range of
call volumes. The systems can be configured with proprietary software
applications that provide a wide variety of preprocessing functions such as
filtering (extracting data that meet preset criteria), distribution (directing
predetermined data to certain specialized applications) and reformatting
(rearranging input data into a user-defined output format).
The Company is currently the leading supplier of billing data collection
products to the RBOCs. Six of the seven RBOCs are current customers for the
Company's products or services. The Company's aggregate revenues from sales to
its three main RBOC customers increased from $10.2 million in fiscal 1994 to
$13.1 million in fiscal 1995 and $20.9 million in fiscal 1996. During the 1980s,
the Company was a primary supplier to Ameritech Corporation, U S West, Inc. and
their predecessors, of SEBX Series products, the Company's prior generation of
billing data collection systems. The Company introduced its next generation
product, the Sterling Series, in late 1995 and has made initial sales of the
Sterling Series products to these customers and to Southwestern Bell Telephone
Company. The Company has sold over 200 units of Sterling Series products to
date. The Company believes that these three customers have replaced in the
aggregate less than 25% of their prior generation billing data collection
systems, and that these customers will replace the balance of these systems, and
purchase additional products and services from the Company, over the next three
to five years. The Company also believes that there is a significant opportunity
to sell Sterling Series products to other RBOCs and to other wireline customers
worldwide. The Company sells its products to wireless telecommunications
companies through a supply relationship with another company.
The Company's objective is to leverage its position as the leading provider
of comprehensive billing data collection systems to RBOCs to become the leading
provider of those systems and related information management products and
services to telecommunications and other information providers domestically and
internationally. The Company's strategy to achieve this objective includes the
following key elements: (i) expand relationships with wireline customers; (ii)
continue to expand sales to new telecommunications markets; (iii) continue to
develop marketing channels; (iv) expand international business; (v) expand
product and service offerings; and (vi) retain technology leadership.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered......................... 2,600,000 shares
Common Stock to be outstanding after
the Offering............................... 6,076,900 shares
Use of Proceeds.............................. To repay indebtedness from the Company's sole
stockholder; for product development; to
enhance international sales, marketing and
support efforts; and for working capital and
other general corporate purposes.
Nasdaq National Market symbol................ AXIM
</TABLE>
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial information should be read in conjunction
with the Financial Statements of the Company and the Predecessor Business and
Notes thereto, "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR AXIOM INC.
BUSINESS(1) ---------------------------------------------------------
----------- PERIOD FROM
YEAR JULY 1, 1994 YEAR ENDED SIX MONTHS ENDED
ENDED TO SEPTEMBER 30, MARCH 31,
JUNE 30, SEPTEMBER 30, -------------------- --------------------
1994 1994 1995 1996 1996 1997
----------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Unrelated third parties:
Equipment.................................. $ 13,963 $ 4,242 $ 18,000 $ 23,358 $ 5,311 $ 8,847
Services................................... 6,266 1,364 5,766 7,739 3,053 3,203
----------- ------------- --------- --------- --------- ---------
20,229 5,606 23,766 31,097 8,364 12,050
----------- ------------- --------- --------- --------- ---------
Related parties.............................. -- -- 1,802 2,867 2,416 --
----------- ------------- --------- --------- --------- ---------
20,229 5,606 25,568 33,964 10,780 12,050
----------- ------------- --------- --------- --------- ---------
----------- ------------- --------- --------- --------- ---------
Charge for purchased research and
development(2)............................... -- 6,700 -- -- -- --
Operating income (loss)........................ (3,009) (6,871) 551 2,085 (3,364) (3,997)
Net income (loss).............................. (4,098) 58 2,501 (1,976) (2,462)
Historical net income (loss) per common
share........................................ $ (1.18) $ 0.02 $ 0.72 $ (0.57) $ (0.71)
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Shares used in computing historical net income
(loss) per common share...................... 3,477 3,477 3,477 3,477 3,477
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Supplemental pro forma net income (loss) per
common share(3).............................. $ 0.55 $ (0.44)
--------- ---------
--------- ---------
Shares used in computing supplemental pro forma
net income (loss) per common share (3)....... 5,180 5,180
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF MARCH 31, 1997
SEPTEMBER 30, ---------------------------
1996 ACTUAL AS ADJUSTED(5)
-------------- ---------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................................................... $ 3,326 $ 1,279 $ 8,970
Total assets...................................................................... 30,336 24,607 31,210
Working capital, excluding obligations to parent and affiliates (4)............... 14,698 10,776 18,148
Obligations to parent and affiliates(4)........................................... 23,291 21,480 --
Long-term debt.................................................................... 147 -- --
Stockholder's equity (deficit)(4)................................................. (1,539) (4,001) 24,090
</TABLE>
- ------------------------
(1) The statement of operations data presented for the Predecessor Business
represents the information for the Wireline Division of TeleSciences, Inc.
See Statement of Revenues and Certain Expenses for the Predecessor Business
and Notes thereto.
(2) Represents a one-time charge for purchased research and development which
was incurred as a result of the acquisition of the Predecessor Business (as
defined below under "The Company") by the Company on July 1, 1994. The
acquisition was accounted for under the purchase method of accounting. See
Notes 1 and 2 of Notes to Consolidated Financial Statements.
(3) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the computation of supplemental pro forma net income (loss) per common
share.
(4) The Company's acquisition of the Predecessor Business and other financing
requirements have been primarily funded from borrowings from Securicor
rather than equity investment. These borrowings are classified as
obligations to parent and affiliates. See "Use of Proceeds."
(5) Adjusted to give effect to the sale by the Company of 2,600,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$12.00 per share and after deducting the estimated underwriting discount and
offering expenses) and the application of the net proceeds therefrom. See
"Use of Proceeds" and "Capitalization." Also includes the effect of the May
1997 transfer of certain net assets at net book value to an affiliate of
Securicor. See "Certain Transactions."
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
MATTERS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
RELIANCE ON A LIMITED NUMBER OF SIGNIFICANT CUSTOMERS; DEPENDENCE ON STERLING
SERIES PRODUCTS
A significant portion of the Company's revenues have been, and are expected
to continue to be, derived from substantial orders placed by large
organizations, and in particular three RBOCs. For fiscal 1996, U S West, Inc.
("U S West"), Southwestern Bell Telephone Company ("Southwestern Bell") and
Ameritech Corporation ("Ameritech"), the Company's largest customers for billing
data collection systems during the period, represented approximately 30.1%,
18.5% and 13.0%, respectively, of total revenues. During fiscal 1996, an
additional 9.4% of the Company's revenues was attributable to sales to Puerto
Rico Telephone Co. The Company has entered into contracts with its larger
domestic customers pursuant to which such customers place orders for the
Company's systems on an as-needed basis on the terms set forth in such
contracts. Under the terms of these contracts, the Company's customers are not
obligated to purchase a minimum number of systems nor are they required to
purchase systems exclusively from the Company. Consequently, the failure of any
of the Company's larger customers to continue to purchase systems from the
Company, or any significant delay in orders from such customers, could have a
material adverse effect on the Company's results of operations and financial
condition. The Company expects that in the future it will continue to be
dependent upon a limited number of customers in any given period for a
significant portion of its revenues. Revenues from RBOCs and other wireline
customers during the next several years will be largely dependent upon the
success of the Company's Sterling Series billing data collection systems that
were introduced in late 1995 and, accordingly, any significant performance
problems with those systems could have a material adverse effect on the
Company's results of operations and financial condition. Demand for the
Company's products will also depend to a substantial extent on the future
capital spending plans of its customers. Furthermore, customer demand generally
can be affected by numerous variables, including changes in governmental
regulation, changes in the customers' competitive environment, mergers or other
strategic alignments involving customers, pricing policies by the Company or its
competitors, personnel changes, the number, timing and significance of new
product and product enhancement announcements by the Company and its
competitors, the ability of the Company to develop, introduce and market new and
enhanced versions of its products on a timely basis, the mix of direct and
indirect sales and general economic factors. There can be no assurance that
revenues from customers that have accounted for significant revenues in past
periods, individually or as a group, will continue, or if continued will reach
or exceed historical levels in any future period. See "Business-- Customers."
DIFFICULTY IN FORECASTING REVENUES; LONG SALES CYCLES; RELIANCE ON LARGE ORDERS;
NON-RECURRING NATURE OF SALES; FLUCTUATIONS IN QUARTERLY RESULTS
The Company's revenues are difficult to forecast as a result of the fact
that the purchase of its systems generally involves a significant commitment of
capital and management time. Accordingly, the sales cycle associated with the
purchase of the Company's products--from initial contact to contract execution
and placement of the actual order by the customer--typically is lengthy, varies
from customer to customer and from project to project, and is subject to a
number of additional significant risks, including customers' budgetary
constraints and internal acceptance reviews and, to a lesser extent, the timing
of sales by the Company's customers to their own customers over which the
Company has little or no control. The Company's results also vary based on the
type and quantity of products shipped, the timing of product shipments, the
relative revenue mix in a given period and the resulting margins. Because of the
nature of the Company's products, a large part of the Company's sales is of a
non-recurring nature. RBOCs typically do not approve their annual budgets until
the Company's second fiscal quarter of each year causing their purchases of the
Company's products to occur later in the year. As a result of the timing of the
RBOC's budget cycle, the Company experienced a significant concentration of
revenues in the fourth fiscal quarter in fiscal 1995 and fiscal 1996. As a
result, revenues have generally been lowest in the first and second fiscal
quarters of recent fiscal years. Such factors could cause the Company's
quarterly results of operations to
6
<PAGE>
fluctuate in future periods. The variations may be material. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
As a result of these and other factors, the Company believes that revenues
and operating results, and particularly quarterly results, are likely to vary
significantly in the future and may be difficult to forecast. Accordingly,
period-to-period comparisons of the Company's results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. In addition, the Company's expense levels are based, in part, on
its expectations as to future revenue levels. If revenue levels are below
expectations in any given period, operating results are likely to be materially
adversely affected. Further, it is possible that in some future period the
Company's revenues or operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Common Stock may
be materially adversely affected. The Company's results of operations and
financial condition also could be materially adversely affected in any fiscal
period by the failure of anticipated orders to materialize and by deferrals or
cancellations of orders.
COMPETITION
The market for billing data collection and traffic management systems is
highly competitive. Many providers offer products that are competitive with
those offered by the Company in both domestic and international markets. The
Company also experiences competition from in-house systems developed by existing
and potential customers. Several companies market products that are designed to
be an integrated solution to the customer's billing and information management
needs. If existing and potential customers of the Company conclude that an
integrated suite of products and services purchased from other providers
eliminates the need for products with the capabilities and features of the
Company's products, the Company's sales may be adversely affected. Many of the
Company's current and potential competitors have significantly greater
financial, marketing, technical, and other competitive resources than the
Company. Because the Company's focus to date has been primarily on products for
wireline customers, certain of its competitors have greater experience in
addressing the requirements of wireless telecommunications systems. Current and
potential competitors may establish cooperative relationships with one another
or with third parties or consolidate to compete more effectively against the
Company. It is also possible that new competitors may emerge, develop products
and services that compete successfully with the Company's products and services
and acquire significant market share. Any of these events could have a material
adverse effect on the Company's results of operations and financial condition.
See "Business-- Competition."
RAPIDLY CHANGING TELECOMMUNICATIONS MARKETS AND TECHNOLOGIES
Over the last decade, the market for telecommunications products and
services has been characterized by rapid technological developments, evolving
industry standards, dramatic changes in the regulatory environment and frequent
new product introductions. The Company's success will depend, in large part,
upon its ability to enhance its existing products and services, and to introduce
new products and services that will respond to these market factors as they
evolve. In particular, the Company's success during the next several years will
be largely dependent upon sales of the Company's Sterling Series billing data
collection systems that were introduced in late 1995. The introduction by third
parties of new products or services could render the Company's existing products
and services obsolete or unmarketable. There can be no assurance that the
Company will complete on a timely or successful basis the development of new or
enhanced products or services or successfully manage transitions from one
product release to the next, that the Company will not encounter difficulties or
delays in the introduction of new or enhanced products, or that defects will not
be found in such new or enhanced products after installation, resulting in a
loss of, or delay in, market acceptance. To date, the majority of the Company's
revenues are attributable to its long-term relationships with traditional
wireline providers of telecommunications services. To continue its revenue
growth, the Company must not only continue to expand its relationships with its
current customer base, but must also expand its customer base to include new
wireline, wireless, ATM and other telecommunications service providers. While
the systems and services that the Company offers to address the needs of the
wireline market have permitted it to begin to attract customers in other
segments of the telecommunications industry, there can be no assurance that it
will be able to do so successfully over the long-term. Failure to do so could
have a material adverse effect on the Company's results of operations and
financial condition. In addition, technologies, services or standards may be
developed that could require significant
7
<PAGE>
changes in the Company's business model, development of new products, or
provision of additional services, at substantial cost to the Company and which
may also result in the introduction of additional competitors into the
marketplace. Furthermore, if the overall market for telecommunications products
and services fails to evolve in the manner contemplated by the Company or grows
more slowly than anticipated as a result of regulatory or other factors, or if
the Company's products and services fail in any respect to achieve market
acceptance, there could be a material adverse effect on the Company's results of
operations and financial condition. The telecommunications industry is also
characterized by significant and rapid strategic alignments. A merger or
consolidation of one or more telecommunications service providers could result
in the loss of customers or sales opportunities to the Company, and there can be
no assurance that new entrants to the market will become customers of the
Company.
IMPLEMENTATION OF NEW SALES AND MARKETING STRATEGIES
To date, the Company has generally relied on direct sales to customers with
which it has developed strategic relationships over the years, primarily RBOCs
and certain international telecommunications companies. The Company has begun
and intends to continue to diversify its sales efforts by selling directly to
new providers and by establishing marketing relationships with systems
integrators, manufacturers of telecommunications switches and other equipment
manufacturers and billing and rating systems providers. With respect to
international sales, the Company intends to rely primarily on establishing
relationships with systems integrators and distributors in targeted countries.
The Company's marketing relationships are generally nonexclusive and are usually
terminable by either party upon three to six months prior notice and certain of
the companies with which the Company has such relationships also have agreements
with, or are themselves, competitors or potential competitors of the Company. In
addition, the Company's marketing partners generally have no obligation to
purchase or obtain orders for the purchase of any of the Company's products.
There can be no assurance that the Company will be successful in establishing
marketing relationships, that the Company's marketing partners will be effective
in marketing the Company's products or that one or more of its marketing
partners will not discontinue their relationships with the Company or form
additional competing arrangements with competitors of the Company or themselves
begin to compete with the Company. In any of those events, the Company's results
of operations and financial condition could be materially adversely affected.
See "Business--Marketing and Sales."
ABILITY TO MANAGE GROWTH
The Company is expanding into new products, services and markets. This
growth has resulted in new and increased responsibilities for management
personnel and has placed and continues to place a significant strain upon the
Company's management, operating and financial systems and resources. In order to
compete effectively and manage anticipated future growth, the Company will be
required to continue to implement and improve management information systems,
procedures and controls on a timely basis and in such a manner as is necessary
to accommodate the increased number of transactions and customers and the
increased size of the Company's operations. Management of future growth, if any,
will also require that the Company continuously expand, train, motivate and
manage its work force. These demands will require the addition of new management
personnel. Competition for qualified personnel with knowledge of the
telecommunications industry and information technologies is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel. The Company's future success will depend to a
significant extent on the ability of its current and future executive officers
to operate effectively, both independently and as a group. There can be no
assurance that the Company's personnel, systems, procedures and controls will be
adequate to support the Company's existing and future operations. Any failure to
implement and improve the Company's operating, financial and management systems
or to expand, train, motivate or manage employees could have a material adverse
effect on the Company's results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continuing
contributions of its key management personnel including Andrew P. Maunder, its
President and Chief Executive Officer. The Company currently has employment
agreements with Mr. Maunder and four other of its key personnel for indefinite
terms that can be terminated by either the Company or the employee upon prior
written notice
8
<PAGE>
of one year or less. The loss of key management or technical personnel could
have a material adverse effect on the Company's results of operations and
financial condition.
RISKS ASSOCIATED WITH SALES TO INTERNATIONAL CUSTOMERS
Sales of products to international customers accounted for approximately
43.2%, 39.8% and 27.9% of the Company's total revenues for fiscal 1994, fiscal
1995 and fiscal 1996, respectively. International sales include sales to Puerto
Rico Telephone Co. and non-recurring sales in fiscal 1995 and fiscal 1996 to a
United Kingdom affiliate of the Company that were delivered to end users in the
United States. See "Certain Transactions." The Company expects that
international sales will continue to account for a significant portion of its
total revenues in future periods and expects that revenues from sales to
international customers will increase. Market acceptance of the Company's
products in international markets is important to the Company's future success,
but these markets are diverse and rapidly evolving, and it is difficult to
predict their potential size, future growth rate or the timing of their
development. In addition, access to international markets is often difficult due
to the established relationships between a government owned or controlled
communications company and its traditional indigenous suppliers of
communications products. Accordingly, there can be no assurance that the
Company's products will be widely accepted by the service providers in these
emerging markets or that the Company, directly or through its marketing
partners, will be able to penetrate these markets effectively.
The proposed further inroads into international markets will require
significant management attention and expenditure of significant financial
resources and could adversely affect the Company's operating margins. Sales to
international customers involve a number of inherent risks, sometimes including
extensive field testing and lengthier sales cycles than with domestic customers,
longer receivables collection periods and greater collection difficulty, less
flexibility as to hardware platforms, difficulty in staffing and managing
international operations, currency exchange rate fluctuations, the impact of
possible recessionary environments in economies outside the United States,
unexpected changes in regulatory requirements, including a slowdown in the rate
of privatization of carriers, reduced protection for intellectual property
rights in some countries and tariffs and other trade barriers. While some of
these factors may not affect the Company directly, to the extent that it sells
products through its marketing partners, these factors may affect the sales and
operations of its partners which in turn may adversely affect demand by the
partners for the Company's products. There can be no assurance that the Company
will be able to sustain or increase revenues derived from sales to international
customers or that the foregoing factors will not have a material adverse effect
on the Company's results of operations and financial condition.
Foreign currency exchange rate fluctuations in countries in which the
Company or its marketing partners sell the Company's products could have a
material adverse effect on the Company's results of operations and financial
condition by resulting in pricing that is not competitive with products priced
in local currencies.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success is dependent in part upon its proprietary hardware and
software technology. The Company relies primarily on trademark, copyright and
trade secret laws, employee and third-party non-disclosure agreements and other
methods to protect its proprietary rights. There can be no assurance that its
agreements with employees, consultants and others who participate in the
development of its software will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known to or independently developed by competitors.
Furthermore, there can be no assurance that the Company's efforts to protect its
rights through trademark and copyright laws will prevent the development and
design by others of products or technology similar to or competitive with those
developed by the Company. The computer technology industry is characterized by
frequent and substantial intellectual property litigation. The Company is not
aware of any patent infringement or any violation of other proprietary rights
claimed by any third party relating to the Company or the Company's products
other than a letter dated June 19, 1997 from Acxiom Corporation ("Acxiom")
requesting that the Company cease using the name "Axiom." Although the Company
believes that the claims of Acxiom, an Arkansas-based provider of marketing
information services, are without merit because of the lack of correspondence
between the products, services and customers of the two companies, there is no
assurance that these claims will be resolved on terms favorable to the Company.
The Company's success will depend in part on its continued ability to obtain and
use licensed software and
9
<PAGE>
technology that is important to certain functionalities of its products,
including the real-time operating system and other software utilized in the
Sterling Series products, software for its traffic management products and the
software for its recently introduced fraud detection and management product. The
inability to continue to procure or use such software or technology could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business--Products and Related Services--New Products and
Services" and "--Proprietary Rights and Licenses."
BENEFITS OF THE OFFERING TO SECURICOR
Approximately $20.4 million (or 73%, based upon an assumed initial public
offering price of $12.00 per share) of the net proceeds of the Offering will be
used to repay certain indebtedness from Securicor (as defined below under "The
Company"), the Company's sole stockholder. Because the Company was capitalized
almost exclusively with debt, this payment will return substantially all of
Securicor's investment in the Company. However, Securicor will continue to own
approximately 3,476,900 shares, or 57%, of the outstanding Common Stock for
which it paid only a nominal amount. Securicor will benefit from the Offering in
that the public market that is expected to exist after the Offering will provide
increased liquidity for the Common Stock that Securicor owns.
CONTROL BY SECURICOR; ANTI-TAKEOVER PROVISIONS
Securicor currently owns all of the issued and outstanding capital stock of
the Company. After the Offering, Securicor is expected to own approximately 57%
of the outstanding Common Stock. Although the Company's Amended and Restated
By-Laws (the "By-laws") require a plurality of votes of all stockholders present
in person or by proxy at a stockholder meeting to elect directors and an
affirmative vote of two-thirds of all stockholders to take stockholder actions
other than the election of directors, Securicor would likely be able to control
most matters requiring approval by the Company's stockholders, including the
election of directors. See "Principal Stockholders" and "Shares Eligible for
Future Sale." In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the time that
such person became an "interested stockholder" unless the business combination
is approved in a prescribed manner and in certain other specified circumstances.
These provisions, together with other provisions in the Company's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") and
By-laws, may discourage acquisition bids for the Company by persons unrelated to
certain existing stockholders. The effect of Securicor's stock ownership and
these provisions may be to limit the price that investors might be willing to
pay in the future for shares of the Common Stock or prevent or delay a merger,
takeover, or other change in control of the Company and thus discourage attempts
to acquire the Company. In addition, the Company's Board of Directors has the
authority to issue up to 5,000,000 shares of Preferred Stock and to determine
the designations, preferences, and relative, participating, optional and other
special rights, or qualifications, limitations or restrictions of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no present plan
to issue any shares of Preferred Stock. The Certificate of Incorporation and
By-laws contain other provisions, such as the supermajority voting requirements
described above, notice requirements for stockholders and limitations on the
stockholders' ability to present proposals to the stockholders for a vote, all
of which may have the further effect of making it more difficult for a third
party to gain control or to acquire the Company. See "Description of Capital
Stock."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering. The initial public offering price will be
determined through negotiation between the Company and the Underwriters and may
bear no relationship to the price at which the Common Stock will trade after the
Offering. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering
10
<PAGE>
price. The market price of the Common Stock may be volatile and may be
significantly affected by factors such as actual or anticipated fluctuations in
the Company's operating results, announcements of new products or services by
the Company or its competitors, developments with respect to conditions and
trends in the information technology or telecommunications industries,
governmental regulation, changes in estimates by securities analysts of the
Company's or its competitors' or customers' future financial performance,
general market conditions and other factors, many of which are beyond the
Company's control. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have adversely
affected the market prices of securities of companies, irrespective of such
companies' operating performances.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Upon the completion of the Offering, the Company will have 6,076,900
shares of Common Stock outstanding. Of these shares, the 2,600,000 shares of
Common Stock sold in the Offering will be freely tradeable without restriction
or further registration under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 3,476,900 shares of Common Stock outstanding as
of the date of this Prospectus are "restricted securities" as defined by Rule
144 under the Securities Act ("Rule 144"). All of these shares have been held by
Securicor for more than one year and will be eligible for sale in accordance
with the provisions of Rule 144 beginning 180 days from the date of this
Prospectus or earlier to the extent Lehman Brothers Inc. consents to such sale
as described below. In addition, the Company has entered into a Registration
Rights Agreement with Securicor (the "Registration Rights Agreement") pursuant
to which Securicor has the right, subject to customary limitations, to: (i)
demand registration of the resale of its Common Stock once every twelve months
at Securicor's expense for so long as Securicor owns at least 10% of the
outstanding Common Stock; and (ii) include its Common Stock in registration
statements filed by the Company.
Upon the completion of the Offering, there will be 321,366 shares of Common
Stock issuable upon exercise of options under the 1997 Stock Incentive Plan.
Approximately one-third of the options will be exercisable 90 days after
completion of the Offering, another one-third will be exercisable in one year
and the remaining one-third will be exercisable in two years. The Company
intends to file a registration statement on Form S-8 covering the shares of
Common Stock issuable upon exercise of options within 90 days from the date of
this Prospectus. The shares registered under such registration statement will be
available for resale in the open market upon the exercise of options, subject to
Rule 144 volume limitations applicable to affiliates. See "Management--1997
Stock Incentive Plan."
The Company and Securicor have agreed that, for a period of 180 days after
the date of this Prospectus, they will not, without the prior written consent of
Lehman Brothers Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock except, in the case of the Company,
in certain limited circumstances. In determining whether to consent to any such
disposition during the 180-day period, Lehman Brothers Inc. is expected to
consider primarily the extent to which the disposition is likely to have an
adverse impact on the trading market for the Common Stock. The granting of such
consent is not expected to be disclosed publicly prior to any such disposition.
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of the Common Stock. Purchasers of shares of
Common Stock in the Offering will, therefore, suffer immediate and substantial
dilution of $8.62 (assuming an initial public offering price of $12.00 per
share) in the pro forma net tangible book value per share of Common Stock. See
"Dilution."
11
<PAGE>
THE COMPANY
The Company is the successor to a corporation formed in 1967. The Company
was formed as a Delaware corporation in June 1994 in connection with the
acquisition of the wireline division of TeleSciences, Inc. (the "Predecessor
Business"). On May 22, 1997, the Company changed its name from Securicor
Communications Inc. to Axiom Inc. Through May 23, 1997, the Company's business
was conducted through its wholly-owned subsidiary, Securicor Telesciences Inc.
("STI"). On that date, STI merged into the Company. The Company is a
wholly-owned subsidiary of Securicor Communications Limited ("Securicor
Communications"), a company based in the United Kingdom, and an indirect wholly-
owned subsidiary of Securicor plc, a multinational company based in the United
Kingdom (collectively with Securicor Communications and other wholly-owned
subsidiaries, other than the Company and its subsidiary, "Securicor"). The
Company's principal executive office is located at 351 New Albany Road,
Moorestown, NJ 08057-1177, and its telephone number is (609) 866-1000.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
hereby are estimated to be $28.1 million ($32.4 million if the Underwriters'
over-allotment options are exercised in full), assuming an initial public
offering price of $12.00 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company.
The Company anticipates applying approximately $20.4 million to repay the
principal and interest on outstanding indebtedness from its parent company,
Securicor. See "Certain Transactions." The annual interest rate on the
interest-bearing portion of the indebtedness to Securicor averaged 6.9% for the
12 month period ended March 31, 1997 and the principal amount is payable upon
demand. See "Certain Transactions." The Company intends to apply approximately
$1.6 million of the net proceeds to expand its Sterling Series billing data
collection system product line in order to address more effectively the
requirements of lower volume telecommunications switches. The Company also
intends to apply approximately $1.4 million to the development of interfaces
with switches utilized by wireless and international telecommunications systems.
The Company also intends to apply approximately $1.0 million to enhance its
international sales, marketing and support efforts. The remainder of the net
proceeds will be added to working capital to be used for general corporate
purposes.
The Company may seek acquisitions of businesses, products and technologies
that are complementary to those of the Company, and a portion of the net
proceeds may be used for such acquisitions. While the Company engages from time
to time in discussions with respect to potential acquisitions, the Company has
no plans, commitments or agreements with respect to any such acquisitions as of
the date of this Prospectus, and there can be no assurance that any such
acquisitions will be made. Pending such uses, the Company intends to invest the
net proceeds from the Offering in short-term, investment grade, interest-bearing
instruments.
DIVIDEND POLICY
The Company has not paid cash dividends on its capital stock during the last
three fiscal years. The Company currently expects it will retain its future
earnings for use in the operation and expansion of its business and does not
anticipate paying any cash dividends in the foreseeable future.
12
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
March 31, 1997, and (ii) the as adjusted capitalization which gives effect to
the sale of 2,600,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $12.00 per share and the application of the
estimated net proceeds therefrom. This table should be read in conjunction with
the Financial Statements of the Company and the Predecessor Business and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Obligations to parent and affiliates...................................................... $ 21,480 $ --(1)
--------- -----------
--------- -----------
Stockholder's (deficit) equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized, no shares outstanding.... -- --
Common Stock, $0.01 par value, 25,000,000 shares authorized, 3,476,900 shares issued and
outstanding, actual; 6,076,900 shares issued and outstanding, as adjusted............. -- 61
Additional paid-in capital.............................................................. -- 28,030
Accumulated deficit..................................................................... (4,001) (4,001)
--------- -----------
Total stockholder's (deficit) equity................................................ (4,001) 24,090
--------- -----------
Total capitalization.............................................................. $ 17,479 $ 24,090
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Represents payment of obligations to Securicor of $20.4 million and transfer
of $1.1 million of these obligations to an affiliate in May 1997. See "Use
of Proceeds" and "Certain Transactions."
13
<PAGE>
DILUTION
The net tangible deficit of the Company as of March 31, 1997 was $7.6
million or $2.17 per share. Net tangible deficit per share is determined by
dividing the net tangible deficit of the Company (total tangible assets less
total liabilities) by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of 2,600,000 shares of Common Stock at
an assumed initial public offering price of $12.00 per share (after deducting
the estimated underwriting discount and commission and estimated offering
expenses), and the application of the estimated net proceeds therefrom, the as
adjusted net tangible book value of the Company as of March 31, 1997, would have
been $20.5 million or $3.38 per share. This represents an immediate increase in
net tangible book value of $5.55 per share to the existing stockholder and an
immediate dilution in as adjusted net tangible book value of $8.62 per share to
new investors purchasing Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................
</TABLE>
<TABLE>
<S> <C> <C>
$ 12.00
Net tangible deficit per share before the Offering............... $ (2.17)
Net increase in net tangible book value per share attributable to
the Offering................................................... 5.55
---------
As adjusted net tangible book value per share after the Offering...
</TABLE>
<TABLE>
<S> <C> <C>
3.38
---------
Dilution per share to new investors in the Offering (1)............
</TABLE>
<TABLE>
<S> <C> <C>
$ 8.62
---------
---------
</TABLE>
- ------------------------
(1) Based on the assumptions set forth above, the dilution to new investors
would be $8.19 per share if all outstanding options to purchase 321,366
shares of Common Stock were exercised in full at an exercise price of $12.00
per share of Common Stock. See "Management--1997 Stock Incentive Plan" and
"Underwriting."
The following table sets forth, on an as adjusted basis (as described above)
as of March 31, 1997, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by the existing stockholder and by the new investors purchasing
shares of Common Stock in the Offering, at an assumed initial public offering
price of $12.00 per share and before deducting estimated underwriting discounts
and commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholder.............................. 3,476,900 57% $ --(1) --% $ --
New investors..................................... 2,600,000 43 31,200,000 100 12.00
------------ --- -------------- -----
Total....................................... 6,076,900 100% $ 31,200,000 100%
------------ --- -------------- -----
------------ --- -------------- -----
</TABLE>
- ------------------------
(1) Excludes the $20.4 million of obligations of the Company to Securicor which
will be repaid from the proceeds of the Offering. See "Use of Proceeds" and
"Certain Transactions."
14
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table contains certain financial data of the Company and the
Predecessor Business and is qualified by the more detailed Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
The statement of operations data for the period from July 1, 1994 to September
30, 1994, the fiscal years ended September 30, 1995 and 1996 and the balance
sheet data as of September 30, 1995 and 1996 have been derived from the
Consolidated Financial Statements of the Company which have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report included elsewhere in this Prospectus. The selected financial data for
the Predecessor Business for the fiscal year ended June 30, 1994 is derived
from, and is qualified by reference to, the Statement of Revenues and Certain
Expenses which is included elsewhere in this Prospectus. This statement has also
been audited by Arthur Andersen LLP. The statement of operations data for the
fiscal years ended June 30, 1992 and 1993 of the Predecessor Business and for
the six months ended March 31, 1996 and 1997 of the Company and the balance
sheet data as of June 30, 1992, 1993 and 1994 for the Predecessor Business and
March 31, 1997 for the Company have been derived from the unaudited financial
statements. The unaudited financial statements, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial condition and results of
operations for such periods. The results of operations for the six months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for any other interim period or for the entire year. The selected
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
15
<PAGE>
<TABLE>
<CAPTION>
AXIOM INC.
----------------------------------------------------
PREDECESSOR BUSINESS (1) PERIOD FROM YEAR ENDED SIX MONTHS ENDED
YEAR ENDED JUNE 30, JULY 1, 1994 TO SEPTEMBER 30, MARCH 31,
------------------------- SEPTEMBER 30, ---------------- ----------------
1992 1993 1994 1994 1995 1996 1996 1997
------- ------- ------- --------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUES:
Unrelated third parties:
Equipment..................................... $15,701 $14,799 $13,963 $ 4,242 $18,000 $23,358 $ 5,311 $ 8,847
Services...................................... 8,484 6,899 6,266 1,364 5,766 7,739 3,053 3,203
------- ------- ------- ------- ------- ------- ------- -------
24,185 21,698 20,229 5,606 23,766 31,097 8,364 12,050
------- ------- ------- ------- ------- ------- ------- -------
Related parties................................. -- -- -- -- 1,802 2,867 2,416 --
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.............................. 24,185 21,698 20,229 5,606 25,568 33,964 10,780 12,050
------- ------- ------- ------- ------- ------- ------- -------
COST OF REVENUES:
Unrelated third parties:
Equipment..................................... 7,564 6,315 8,785 2,271 9,110 11,639 3,825 5,054
Services...................................... 3,417 4,586 4,018 1,086 3,093 4,580 2,292 2,780
------- ------- ------- ------- ------- ------- ------- -------
10,981 10,901 12,803 3,357 12,203 16,219 6,117 7,834
------- ------- ------- ------- ------- ------- ------- -------
Related parties................................. -- -- -- -- 1,274 1,946 1,635 --
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues...................... 10,981 10,901 12,803 3,357 13,477 18,165 7,752 7,834
------- ------- ------- ------- ------- ------- ------- -------
Gross profit...................................... 13,204 10,797 7,426 2,249 12,091 15,799 3,028 4,216
------- ------- ------- ------- ------- ------- ------- -------
OPERATING EXPENSES:
Research, development and engineering........... 4,106 4,913 5,450 1,348 5,948 7,003 3,209 3,790
Selling, general and administrative............. 6,313 4,986 4,985 1,072 5,206 6,308 2,970 4,230
Parent charges.................................. -- -- -- -- 386 403 213 193
Charge for purchased research and development
(2)........................................... -- -- -- 6,700 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses...................... 10,419 9,899 10,435 9,120 11,540 13,714 6,392 8,213
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)....................... $ 2,785 $ 898 $(3,009) (6,871) 551 2,085 (3,364) (3,997)
------- ------- ------- ------- ------- ------- ------- -------
------- ------- -------
INTEREST EXPENSE, net (including related party
interest)....................................... 9 112 514 227 279
OTHER INCOME...................................... 66 148 430 413 54
EQUITY IN LOSS OF INVESTEE........................ -- 494 18 18 --
GAIN ON SALE OF INVESTMENT........................ -- -- 2,061 -- --
------- ------- ------- ------- -------
Income (loss) before
income taxes................................ (6,814) 93 4,044 (3,196) (4,222)
INCOME TAX (EXPENSE)
BENEFIT......................................... 2,716 (35) (1,543) 1,220 1,760
------- ------- ------- ------- -------
NET INCOME (LOSS)................................. $(4,098) $ 58 $ 2,501 $(1,976) $(2,462)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
HISTORICAL NET INCOME (LOSS) PER COMMON SHARE..... $ (1.18) $ 0.02 $ 0.72 $ (0.57) $ (0.71)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
SHARES USED IN COMPUTING HISTORICAL NET INCOME
(LOSS) PER COMMON SHARE......................... 3,477 3,477 3,477 3,477 3,477
------- ------- ------- ------- -------
------- ------- ------- ------- -------
SUPPLEMENTAL PRO FORMA NET INCOME (LOSS) PER
COMMON SHARE (3)................................ $ 0.55 $ (0.44)
------- -------
------- -------
SHARES USED IN COMPUTING SUPPLEMENTAL PRO FORMA
NET INCOME (LOSS) PER COMMON SHARE(3)........... 5,180 5,180
------- -------
------- -------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AXIOM INC.
------------------------------------------
MARCH 31,
PREDECESSOR BUSINESS(1) 1997
JUNE 30, SEPTEMBER 30, ---------
------------------------------- -------------------------------
1992 1993 1994 1994 1995 1996 ACTUAL
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 765 $ 32 $ -- $ 225 $ 1,449 $ 3,326 $ 1,279
Total assets.................................. 9,956 13,435 9,027 15,302 21,849 30,336 24,607
Working capital (deficit), excluding
obligations to parent and affiliates (4).... 2,369 (1,389) 330 1,742 6,671 14,698 10,776
Obligations to parent and affiliates(4)....... -- -- -- 12,603 18,461 23,291 21,480
Long-term debt................................ -- -- -- -- -- 147 --
Stockholder's equity (deficit) (4)............ 5,007 1,363 2,330 (4,098) (4,040) (1,539) (4,001)
<CAPTION>
AS
ADJUSTED(5)
-------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 8,970
Total assets.................................. 31,210
Working capital (deficit), excluding
obligations to parent and affiliates (4).... 18,148
Obligations to parent and affiliates(4)....... --
Long-term debt................................ --
Stockholder's equity (deficit) (4)............ 24,090
</TABLE>
- ------------------------
(1) The statement of operations and balance sheet data presented for the
Predecessor Business represent the information for the Wireline Division of
TeleSciences, Inc. See Statement of Revenues and Certain Expenses for the
Predecessor Business and Notes thereto. The Predecessor Business data
exclude any intercompany information with its former owner.
(2) Represents a one-time charge for purchased research and development which
was incurred as a result of the acquisition of the Predecessor Business by
the Company on July 1, 1994. The acquisition was accounted for under the
purchase method of accounting. See Notes 1 and 2 of Notes to Consolidated
Financial Statements.
(3) See Note 2 of the Notes to Consolidated Financial Statements for an
explanation of the computation of supplemental pro forma net income (loss)
per common share.
(4) The Company's acquisition of the Predecessor Business and other financing
requirements have been primarily funded from borrowings from Securicor
rather than equity investment. These borrowings are classified as
obligations to parent and affiliates. See "Use of Proceeds."
(5) Adjusted to give effect to the sale by the Company of 2,600,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$12.00 per share and after deducting the estimated underwriting, discount
and offering expenses) and the application of the net proceeds therefrom.
See "Use of Proceeds" and "Capitalization." Also includes the effect of the
May 1997 transfer of certain net assets at net book value to an affiliate of
Securicor. See "Certain Transactions."
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company develops, markets and supports integrated hardware and software
systems that are able to collect and process an increasing volume of transaction
information from a wide variety of wireline switches and transmit the
information to the customer's information management networks. The Company is
developing systems that process transaction information from wireless, ATM and
other specialized telecommunications switches. The Company's customers use this
information to bill their subscribers, to implement customized marketing
programs and to perform other data management functions. The Company also
provides traffic management solutions to telecommunications companies. The
Company recently introduced its first applications software product, a fraud
detection and management system. The Company provides installation, ongoing
maintenance, support and training, as well as customized engineering services,
related to the Company's systems.
The Company is the successor to a corporation formed in 1967. The Company
was formed in June 1994 in connection with the acquisition of the assets of the
wireline division of TeleSciences, Inc. (the "Predecessor Business"). The
Company is a wholly-owned subsidiary of Securicor Communications and an indirect
wholly-owned subsidiary of Securicor, a multinational public company based in
the United Kingdom. After the Offering, Securicor is expected to own
approximately 57% of the Company.
A significant portion of the Company's revenues have been, and are expected
to continue to be, derived from substantial orders placed by large
organizations, and in particular three RBOCs. Aggregate revenues from U S West,
Southwestern Bell and Ameritech accounted for 50.3%, 51.2% and 61.6% of the
Company's total revenues in fiscal 1994, fiscal 1995 and fiscal 1996,
respectively. During fiscal 1996, an additional 9.4% of the Company's revenues
was attributable to sales to Puerto Rico Telephone Co.
Domestic revenues are typically generated under cancelable general purchase
agreements which provide for the continuing supply of products and services over
future years. Pricing is based upon the volume of products ordered.
Internationally, the Company typically enters into long-term contracts for the
delivery of turn-key systems which include products and services. The Company's
revenues are difficult to forecast because the purchase of its systems generally
involves a significant commitment of capital and management time, which
generally results in lengthy sales cycles.
The Company generally recognizes revenues for products at the time of
shipment and for services when performed. Revenues from support and maintenance
contracts are recognized on a pro-rata basis over the term of the relevant
agreement.
Quarterly revenues are subject to substantial fluctuations due primarily to
the Company's concentration of customers and the timing of orders received. The
timing of orders is dependent, to a large extent, on the timing of the Company's
customers' annual budget process. Historically, the Company's first and second
fiscal quarters have generated a lower level of revenues compared to the
Company's third and fourth fiscal quarters, by which time the Company's
customers have typically approved their budgets. Historically, product and
service backlog has been a relatively small amount and the majority is fulfilled
within three months. Because of its close links to, and ongoing communications
with, its customers, the Company generally is able to plan for product demand
and, when the order is received, ship its products within a relatively short
time period thereafter.
Cost of revenues includes the direct cost of hardware and software modules,
other manufacturing costs related to the assembly and testing of products,
customer service costs, agent commissions where applicable, and other variable
costs such as freight, scrap and installation materials. The Company has a
relatively high fixed cost base which is included in cost of revenues. As a
result, any significant decline in revenues would likely have a significant
adverse effect on margins.
Research, development and engineering expenses consist of payroll and
related expenses and other costs associated with the design and development of
the Company's products. These costs are charged to expense as incurred.
18
<PAGE>
Selling, general and administrative expenses consist of costs to support the
Company's sales, marketing and administrative functions. Included within these
costs are payroll and related expenses, supplies, travel, outside services, as
well as the cost of the Company's participation in trade shows, industry
conferences and related travel and promotional costs.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO MARCH 31, 1996
REVENUES
Revenues attributable to unrelated third parties ("Third-party Revenues")
increased by 44.1% from $8.4 million for the six months ended March 31, 1996 to
$12.1 million for the same period in 1997. Equipment revenues increased 66.6%
from $5.3 million for the six months ended March 31, 1996 to $8.8 million for
the same period in 1997. This increase resulted primarily from larger shipments
to existing RBOC customers and the addition of several new customers. Services
revenues increased 4.9% from $3.1 million for the six months ended March 31,
1996 to $3.2 million for the same period in 1997. This increase is mainly due to
increased system installation services during the six months. Additionally, the
Company generated $0 and $1.1 million of Third-party Revenues for the six months
ended March 31, 1996 and 1997, respectively, related to sales of an affiliate's
products which are not expected to recur in the future. See Note 5 to Notes to
Consolidated Financial Statements. In fiscal 1995 and fiscal 1996, the Company
experienced a significant concentration of revenues in the fourth fiscal
quarter. As a result, revenues were lower in the first two quarters of fiscal
1996 and fiscal 1997. See "--Quarterly Results of Operations." For the six
months ended March 31, 1996, the Company recognized $2.0 million of one-time
related-party revenues. These revenues were attributable to sales to a Securicor
affiliate, that generated approximately $3.7 million in revenues from January
1995 to April 1996. See "Certain Transactions." The remaining $376,000 of
related-party revenues represent revenues from the sale of equipment to an
entity in which the Company had an equity investment prior to May 1996. See Note
5 of Notes to Consolidated Financial Statements. Revenues from this entity for
the six months ended March 31, 1997 were $1.1 million and are included in
Third-party Revenues.
GROSS PROFIT
The portion of gross profit attributable to Third-party Revenues increased
from 26.9% of such revenues for the six months ended March 31, 1996 to 35.0% of
such revenues for the same period in 1997. Gross profit related to equipment
revenues increased from 28.0% for the six months ended March 31, 1996 to 42.9%
for the same period in 1997. These increases resulted primarily from the
increase in Third-party Revenues. Gross profit related to services revenues
decreased from 24.9% for the six months ended March 31, 1996 to 13.2% for the
same period in 1997. This decrease is primarily due to increases in fixed costs
incurred in order to support the Company's growing customer base. The Company
has a relatively high fixed cost base which is included in cost of revenues. As
a result, fluctuations in revenues have a significant effect on margins. Total
gross profit as a percentage of total revenues increased from 28.1% for the six
months ended March 31, 1996 to 35.0% for the same period in 1997.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses increased 18.1% from $3.2
million for the six months ended March 31, 1996 to $3.8 million for the same
period in 1997 and decreased as a percentage of Third-party Revenues from 38.4%
to 31.5%. The absolute increase resulted primarily from the addition of
engineering staff and subcontractors to support the increasing development
requirements and demanding timetables of the Company's customers.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 42.4% from $3.0
million for the six months ended March 31, 1996 to $4.2 million for the same
period in 1997. As a percentage of Third-party Revenues, selling, general and
administrative expenses decreased from 35.5% for the six months ended
19
<PAGE>
March 31, 1996 to 35.1% for the same period in 1997. The absolute increase
resulted primarily from the addition of staff in the marketing and sales
departments of the Company. The increase in marketing and sales staff was a
result of the Company's increased focus on developing new markets and expanding
existing markets for the Company's products.
PARENT CHARGES
After the acquisition of the Predecessor Business, Securicor began to charge
the Company an allocated portion of group and divisional overhead costs (the
"Parent Charges"). The Parent Charges for the six months ended March 31, 1996
and 1997 were $213,000 and $193,000, respectively. The Company will not incur
any Parent Charges after the Offering and is not expected to incur any
significant expenses in lieu of these Parent Charges. The Company and Securicor
have entered into an agreement effective upon the completion of the Offering
pursuant to which Securicor will provide international marketing services to the
Company for an annual charge of $160,000. In addition, the Company will pay each
of its directors who are employees of Securicor annual directors fees of
$20,000, which the directors will remit to Securicor. See "Management--Director
Compensation" and "Certain Transactions."
INTEREST EXPENSE
Interest expense was $227,000 for the six months ended March 31, 1996 and
$279,000 for the same period in 1997. This increase resulted from higher
borrowings from Securicor to meet working capital requirements. Upon the
consummation of the Offering, the borrowings from Securicor will be fully
repaid. As a result, the Company's interest expense is expected to decrease. See
"Use of Proceeds."
OTHER INCOME
Other income decreased from $413,000 for the six months ended March 31, 1996
to $54,000 for the same period in 1997. A litigation settlement gain of $350,000
was recognized in the first quarter of fiscal 1996.
EQUITY IN LOSS OF INVESTEE
The Company recorded a $18,000 loss for the six months ended March 31, 1996
as a result of its investment in Metapath Corporation which was accounted for
under the equity method. This investment was sold in May 1996. See Note 5 of
Notes to Consolidated Financial Statements.
INCOME TAXES
The Company's effective tax rate was 38.2% for the six months ended March
31, 1996 and was 41.7% for the same period in 1997. Income tax benefits were
recorded in both periods due to the losses incurred based upon the expected
annual effective income tax rate.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES
Third-party Revenues increased 30.8% from $23.8 million in fiscal 1995 to
$31.1 million in fiscal 1996, of which $15.4 million was recognized in the
fourth fiscal quarter. Equipment revenues increased 29.8% from $18.0 million in
fiscal 1995 to $23.4 million in fiscal 1996. Upon the acquisition of the
Predecessor Business on July 1, 1994, the Predecessor Business had three
principal customers: U S West, Ameritech and Telecom Argentina. Since the
acquisition, the Company has increased its customer base. The increase in
revenues in fiscal 1996 resulted, in large part, from increased revenues from U
S West and Southwestern Bell. Internationally, the Company generated revenues
from the Puerto Rico Telephone Co. which were offset by lower revenues from
long-term contracts with Telecom Argentina and two Brazilian telephone
operators, which contracts were substantially completed in early fiscal 1996.
Third-party Revenues from international customers were $8.8 million in fiscal
1995 and $7.2 million in fiscal 1996. The Company expects international revenues
to continue to be significant in future periods as a result of the Company's
planned expansion of its international marketing efforts. The Company introduced
a new product line, the
20
<PAGE>
Sterling Series, in late 1995. See "Business--Products and Related Services."
Revenues from new products, principally the Sterling Series products, accounted
for approximately 6.3% and 41.3% of Third-party Revenues in fiscal 1995 and
fiscal 1996, respectively. Services revenues increased 34.2% from $5.8 million
in fiscal 1995 to $7.7 million in fiscal 1996. This is primarily due to an
increase in installations related to equipment sold and additional support
contract revenue from U S West. In fiscal 1995 and fiscal 1996, the Company also
generated related-party revenues from sales to an affiliate of Securicor of $1.4
million and $2.3 million, respectively, which will not recur in the future. The
remaining related-party revenues of $381,000 and $544,000 for fiscal 1995 and
fiscal 1996, respectively, represent revenues from the sale of equipment to an
entity in which the Company had an equity investment from January 1995 to May
1996. See Note 5 of Notes to Consolidated Financial Statements. Revenues from
this entity from May 1996 to September 30, 1996 were $1.6 million and are
included in Third-party Revenues. In fiscal 1996, the Company also generated
$792,000 of Third-party Revenues related to sales of an affiliate's products
which are not expected to recur subsequent to May 1997. See Note 5 of Notes to
Consolidated Financial Statements.
GROSS PROFIT
The portion of gross profit attributable to Third-party Revenues was 48.7%
of such revenues in fiscal 1995 and 47.8% of such revenues in fiscal 1996. Gross
profit related to equipment revenues was 49.4% in fiscal 1995 and 50.2% in
fiscal 1996. Gross profit related to services revenues was 46.4% in fiscal 1995
and 40.8% in fiscal 1996. This decrease in margin as a percentage of revenues is
due to additional fixed costs incurred to support the increasing customer base.
The fiscal 1996 cost of revenues includes increased program management costs of
approximately $500,000 associated with supporting significant customer
contracts. Total gross profit as a percentage of total revenues remained
substantially constant in fiscal 1995 and fiscal 1996.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses increased 17.7% from $5.9
million in fiscal 1995 to $7.0 million in fiscal 1996. As a percentage of
Third-party Revenues, research, development and engineering expenses decreased
from 25.0% in fiscal 1995 to 22.5% in fiscal 1996. The absolute increase in such
expenses related primarily to the further development and enhancement of the
Company's Sterling Series billing data collection products. Included in
research, development and engineering expenses for fiscal 1995 and fiscal 1996
were $720,000 of amortization related to developed technology acquired with the
purchase of the Predecessor Business in July 1994. Research, development and
engineering expenses are expected to increase in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 21.2% from $5.2
million in fiscal 1995 to $6.3 million in fiscal 1996. As a percentage of
Third-party Revenues, selling, general and administrative expenses decreased
from 21.9% in fiscal 1995 to 20.3% in fiscal 1996. The absolute increase
resulted primarily from higher selling expenses related to higher sales volumes
and increased marketing expenses incurred in connection with trade shows,
advertising and other marketing activities.
PARENT CHARGES
Parent Charges were $386,000 in fiscal 1995 and $403,000 in fiscal 1996.
Prior to July 1, 1994 (date of acquisition of Predecessor Business), there were
no Parent Charges.
INTEREST EXPENSE
Interest expense was $112,000 in fiscal 1995 and $514,000 in fiscal 1996.
The increase in fiscal 1996 resulted from higher outstanding borrowings from
Securicor incurred in order to meet working capital requirements.
21
<PAGE>
OTHER INCOME
Other income increased from $148,000 in fiscal 1995 to $430,000 in fiscal
1996. A litigation settlement gain of $350,000 was recognized in the first
quarter of fiscal 1996.
EQUITY IN LOSS OF INVESTEE AND GAIN ON SALE OF INVESTMENT
The Company recorded a $494,000 loss in fiscal 1995 and a $18,000 loss in
fiscal 1996 as a result of its investment in Metapath Corporation which was
accounted for under the equity method. This investment was sold in May 1996
resulting in a gain on sale of this investment of $2,061,000. See Note 5 of
Notes to Consolidated Financial Statements.
GAIN ON SALE OF INVESTMENT
In May 1996, the Company sold its interest in Metapath Corporation in which
it had made an initial investment of $512,000. A gain of $2,061,000 was reported
related to this sale. See Note 5 of Notes to Consolidated Financial Statements.
INCOME TAXES
The Company's effective tax rate was 37.6% and 38.2% for fiscal 1995 and
fiscal 1996, respectively. The increase in such rate in fiscal 1996 resulted
from the higher utilization of research and development credits in fiscal 1995.
FISCAL 1995 OF THE COMPANY COMPARED TO THE FISCAL 1994 OF THE PREDECESSOR
BUSINESS (PREDECESSOR FISCAL YEAR ENDED JUNE 30, 1994)
BACKGROUND
The Company was formed in connection with the acquisition of the assets of
the Predecessor Business on July 1, 1994. The following analysis compares the
results of the Company's fiscal 1995 (year ended September 30, 1995) with the
results of the Predecessor Business' fiscal 1994 (year ended June 30, 1994).
REVENUES
Third-party Revenues increased 17.5% from $20.2 million in fiscal 1994 to
$23.8 million in fiscal 1995. Equipment revenues increased 28.9% from $14.0
million in fiscal 1994 to $18.0 million in fiscal 1995. Revenues increased in
fiscal 1995 primarily as a result of the addition of new customers, in
particular two Brazilian telephone operators and Southwestern Bell, and
increased revenues from U S West. The Company introduced the Sterling Series
billing data collection products in late 1995 as the successor to its SEBX
Series billing data collection products which the Company had introduced in the
1980s. A majority of the fiscal 1995 billing data collection product revenues
were derived from sales of Sterling Series products. Services revenues decreased
8.0% from $6.3 million in fiscal 1994 to $5.8 million in fiscal 1995. This
decrease is primarily due to a decrease in support contract revenue from U S
West and Ameritech as some of the SEBX Series equipment of these customers were
being phased out of service. In fiscal 1995, the Company generated related party
revenues from sales to an affiliate of Securicor of $1.4 million. The remaining
related-party revenues of $381,000 in fiscal 1995 represent revenues from the
sale of equipment to an entity in which the Company had an equity investment
after January 1995. See Note 5 of Notes to Consolidated Financial Statements.
There were no revenues from this entity prior to January 1995.
GROSS PROFIT
The portion of gross profit attributable to Third-party Revenues increased
from 36.7% of such revenues in 1994 to 48.7% of such revenues in fiscal 1995.
Gross profit related to equipment revenues increased from 37.1% in fiscal 1994
to 49.4% in fiscal 1995. Gross profit related to services revenues increased
from 35.9% in fiscal 1994 to 46.4% in fiscal 1995. This reflected the benefits
of spreading higher revenues over the Company's fixed cost base and a reduction
of certain fixed costs when Securicor acquired the Company. The gross profit
percentage in fiscal 1994 was lower as the volume of fiscal 1994 revenues were
lower.
22
<PAGE>
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses increased 9.1% from $5.5
million in fiscal 1994 to $5.9 million in fiscal 1995 and decreased as a
percentage of Third-party Revenues from 26.9% in fiscal 1994 to 25.0% in fiscal
1995. The absolute increase in such expenses was attributable primarily to the
further development and enhancement of the Company's billing data collection
products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased 4.4% from $5.0
million in fiscal 1994 to $5.2 million in fiscal 1995. As a percentage of
Third-party Revenues, selling, general and administrative expenses decreased
from 24.6% in fiscal 1994 to 21.9% in fiscal 1995. The absolute increase was
attributable to increased selling expenses which are related to sales volume
increases, increased marketing expenses in the areas of advertising and other
marketing activities.
EQUITY IN LOSS OF INVESTEE
The Company recorded a $494,000 loss in fiscal 1995 as a result of its
investment in Metapath Corporation which was accounted for under the equity
method. This investment was sold in May 1996. See Note 5 of Notes to
Consolidated Financial Statements.
PERIOD FROM JULY 1, 1994 TO SEPTEMBER 30, 1994
REVENUES
This period represents the first three months of activity under Securicor
ownership. For the period from July 1, 1994 to September 30, 1994, total
revenues were $5.6 million. A majority of these revenues was generated from
sales to three customers: Telecom Argentina, Ameritech and U S West.
International revenues represented $2.7 million or 48.0% of total revenues.
GROSS PROFIT
Gross profit as a percentage of total revenues was 40.1% for the period from
July 1, 1994 to September 30, 1994. The gross profit percentage was lower than
in fiscal 1995 and fiscal 1996 as a result of the lower level of annualized
revenues for this period.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses were $1.3 million for the
period from July 1, 1994 to September 30, 1994 or 24.0% of total revenues. These
expenses as a percentage of total revenues were generally consistent with those
of fiscal 1995 and fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $1.1 million for the
period from July 1, 1994 to September 30, 1994 or 19.1% of total revenues. These
expenses as a percentage of total revenues were generally consistent with those
of fiscal 1995 and fiscal 1996.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT
The charge for purchased research and development of $6.7 million in the
period from July 1, 1994 to September 30, 1994 represents a one-time charge
related to purchased research and development in connection with the acquisition
of the Predecessor Business. This charge relates to incomplete research and
development projects which had not yet reached technological feasibility as of
the acquisition date and had no alternate future uses.
INCOME TAXES
For the period from July 1, 1994 to September 30, 1994, an income tax
benefit was recorded due to the one-time charge for purchased research and
development. See Note 14 of Notes to Consolidated Financial Statements.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial
information for each quarter in fiscal 1995 and fiscal 1996 and the first and
second quarter of fiscal 1997. In the opinion of the Company's management, this
information has been prepared on the same basis as the Consolidated Financial
Statements appearing elsewhere in this Prospectus and includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial results set forth herein. Results of operations for any previous
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
-------------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Unrelated third
parties............... $ 6,746 $ 3,316 $ 5,868 $ 7,836 $ 3,767 $ 4,597 $ 7,298 $ 15,435
Related parties......... -- 921 431 450 1,145 1,271 168 283
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues.......... 6,746 4,237 6,299 8,286 4,912 5,868 7,466 15,718
Cost of revenues:
Unrelated third
parties............... 3,573 2,203 2,898 3,529 2,699 3,418 4,382 5,720
Related parties......... -- 695 297 282 902 733 67 244
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of
revenues.............. 3,573 2,898 3,195 3,811 3,601 4,151 4,449 5,964
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit............ 3,173 1,339 3,104 4,475 1,311 1,717 3,017 9,754
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research, development
and engineering....... 1,287 1,469 1,562 1,630 1,522 1,687 1,936 1,858
Selling, general and
administrative........ 1,148 1,309 1,357 1,392 1,549 1,421 1,559 1,779
Parent charges.......... 93 93 93 107 97 116 120 70
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 2,528 2,871 3,012 3,129 3,168 3,224 3,615 3,707
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income
(loss)................ 645 (1,532) 92 1,346 (1,857) (1,507) (598) 6,047
Interest expense, net... 36 17 53 6 107 120 124 163
Other income
(expense)............. -- -- 7 141 397 16 22 (5)
Equity in loss of
investee.............. -- 177 268 49 18 -- -- --
Gain on investment...... -- -- -- -- -- -- 2,061 --
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes.......... 609 (1,726) (222) 1,432 (1,585) (1,611) 1,361 5,879
Income tax (expense)
benefit............... (229) 649 83 (538) 605 615 (520) (2,243)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ 380 $ (1,077) $ (139) $ 894 $ (980) $ (996) $ 841 $ 3,636
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
FISCAL 1997
------------------------
<S> <C> <C>
DEC. 31 MARCH 31
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Unrelated third
parties............... $ 4,781 $ 7,269
Related parties......... -- --
----------- -----------
Total revenues.......... 4,781 7,269
Cost of revenues:
Unrelated third
parties............... 3,792 4,042
Related parties......... -- --
----------- -----------
Total cost of
revenues.............. 3,792 4,042
----------- -----------
Gross profit............ 989 3,227
----------- -----------
Operating expenses:
Research, development
and engineering....... 1,943 1,847
Selling, general and
administrative........ 2,211 2,019
Parent charges.......... 96 97
----------- -----------
Total operating
expenses.............. 4,250 3,963
----------- -----------
Operating income
(loss)................ (3,261) (736)
Interest expense, net... 150 129
Other income
(expense)............. 27 27
Equity in loss of
investee.............. -- --
Gain on investment...... -- --
----------- -----------
Income (loss) before
income taxes.......... (3,384) (838)
Income tax (expense)
benefit............... 1,442 318
----------- -----------
Net income (loss)....... $ (1,942) $ (520)
----------- -----------
----------- -----------
</TABLE>
Quarterly revenues are subject to substantial fluctuations primarily
resulting from the Company's concentration of customers and the timing of orders
received. The timing of orders is dependent, to a large extent, on the timing of
the Company's customers' annual budget process. Historically, the Company's
first and second fiscal quarters have generated a lower level of revenues
compared to the Company's third and fourth fiscal quarters, by which time the
Company's customers have typically approved their budgets. The Company's
operating results may fluctuate significantly from quarter to quarter or on an
annual basis in the future as a result of a number of factors, including but not
limited to the size and timing of customer orders; the length of the Company's
sales cycle; the timing of product announcements and introductions by the
Company and its competitors; the Company's ability to develop, introduce and
market new products and product enhancements; market acceptance of the Company's
products; deferrals of customer orders in anticipation of new products or
product enhancements; the Company's ability to control costs; the availability
of components; political instability in, or trade embargoes with respect to,
foreign markets; changes in the Company's management team; and fluctuating
economic conditions. The Company's future operating results may fluctuate as a
result of these and other factors, which could have a material adverse effect on
the Company's business, results of operations and financial condition. See "Risk
Factors-- Difficulty in Forecasting Revenues; Long Sales Cycles; Reliance on
Large Orders; Non-recurring Nature of Sales; Fluctuations in Quarterly Results."
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LIQUIDITY AND CAPITAL RESOURCES
Since the acquisition of the Predecessor Business by Securicor in July 1994,
the Company has financed its operations to date primarily with cash generated
from operations and borrowings from Securicor. Prior to July 1994, the
Predecessor Business had a credit facility with a bank, and this facility, along
with loans from certain stockholders was used to fund working capital
requirements. As of March 31, 1997, the Company had $1.3 million of cash, $8.2
million in net trade accounts receivable, and $10.7 million of working capital
deficit.
Net cash used in operating activities was $1.9 million and $4.1 million in
fiscal 1995 and 1996, respectively, and net cash provided by operating
activities was $680,000 for the six months ended March 31, 1997. In fiscal 1995,
an increase in accounts receivable of $2.1 million, an increase in inventories
of $2.4 million and a decrease in other accrued expenses of $1.2 million were
only partially offset by a $1.1 million increase in accounts payable. In fiscal
1996, increases in accounts receivable of $8.3 million were only partially
offset by the cash provided by the sum of net income, adjusted for $158,000 in
non-cash charges, and a $1.1 million increase in accrued taxes payable. For the
six months ended March 31, 1997, decreases in accounts receivable of $7.6
million were only partially offset by the net loss of $2.5 million and a $3.9
million decrease in accrued taxes payable.
Net cash used in investing activities was $2.7 million and $769,000 in
fiscal 1995 and for the six months ended March 31, 1997, respectively. Net cash
provided by investing activities was $1.2 million in fiscal 1996. In fiscal
1995, fiscal 1996 and for the six months ended March 31, 1997, purchases of
property and equipment were $877,000, $818,000 and $769,000, respectively.
Net cash provided by financing activities was $5.9 million and $4.7 million
in fiscal 1995 and fiscal 1996, respectively, and the net cash used in financing
activities was $2.0 million for the six months ended March 31, 1997. These
amounts resulted primarily from funding which the Company received from
Securicor. The Company made net repayments of $1.8 million to Securicor during
the six months ended March 31, 1997.
The Company's funding requirements, outside of those generated from
operations have been satisfied from borrowings from Securicor. The Company's
obligation to Securicor was $23.3 million and $21.5 million at September 30,
1996 and March 31, 1997, respectively. As of March 31, 1997, $9.0 million of the
obligation bore interest at 1% over Securicor's borrowing rate. The remaining
portion of the obligation is interest free. The Company anticipates applying
approximately $20.4 million from the proceeds of the Offering to repay the
principal and interest on outstanding indebtedness from Securicor. The remaining
balance of approximately $1.1 million was transferred to an affiliate of
Securior in May 1997. The annual interest rate on the interest-bearing portion
of the indebtedness to Securicor averaged 6.9% for the 12 month period ended
March 31, 1997 and the principal amount is payable upon demand. See "Certain
Transactions." The Company does not expect to borrow from Securicor after the
completion of the Offering.
The Company is in the process of establishing commercial banking
relationships. The Company has received a commitment for the establishment of a
$2.5 million credit facility from a bank which will be used to meet short-term
borrowing requirements.
The Company believes that its existing cash balances, cash generated from
operations, borrowings under the credit facility and the net proceeds from the
Offering will be sufficient to meet the Company's cash requirements during the
next twelve months. However, depending upon its rate of growth and
profitability, the Company may require additional equity or debt financing to
meet its working capital requirements or capital expenditure needs. There can be
no assurance that additional financing, if needed, will be available when
required or, if available, on terms satisfactory to the Company.
INFLATION AND FOREIGN EXCHANGE
To date, inflation and foreign currency fluctuations have not had a material
impact on the Company's financial condition and results of operations. All sales
arrangements with third-party international customers are denominated in U.S.
dollars.
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BUSINESS
GENERAL
The Company is a leader in providing comprehensive billing data collection
solutions to providers of local, long-distance and other advanced
telecommunications services. The Company's largest customers include RBOCs, such
as Ameritech, Southwestern Bell and U S West, and international providers of
telecommunications services, such as Telecom Argentina. The Company develops,
markets and supports integrated hardware and software systems that are able to
collect and process an increasing volume of transaction information from a wide
variety of wireline telecommunications switches and transmit this information to
the customer's information management networks. The Company also is developing
systems that process transaction information from wireless, ATM and other
specialized telecommunications switches. The Company's customers use this
information to bill their subscribers, to implement customized marketing
programs and to perform other data management functions. The Company also
provides traffic management solutions to telecommunications companies such as
TELESP, a Brazilian telecommunications service provider. The Company recently
introduced its first applications software product, a fraud detection and
management system. The Company provides installation, ongoing maintenance,
support and training, as well as customized engineering services, related to the
Company's systems.
The telecommunications industry is currently experiencing rapid growth and
change resulting from the combined effects of regulatory, competitive and
technological developments. To comply with regulatory requirements and to be
successful in increasingly competitive markets, telecommunications providers are
being required to upgrade their existing data collection systems to new systems
that can process large volumes of transaction information without compromising
the integrity of the billing stream and can efficiently transmit the information
for use by increasingly sophisticated and varied data management applications.
The Company believes that it provides to large wireline customers the most
advanced and reliable billing data collection systems and that it is the leader
in designing these systems to meet the AMADNS generic requirements established
in 1994. A critical feature of the Company's systems is redundancy, permitting
them to protect the integrity of call detail records ("CDRs") and provide
"financial grade" reliability (greater than 99.999% system availability). The
Company's products also are capable of delivering transaction information on a
real-time basis. Reflecting the engineering expertise acquired through the
Company's 30 year history, the Company's products offer a high degree of
connectivity, permitting them to interface with switches from all major domestic
and most international wireline switch manufacturers, including Northern Telecom
Inc., Lucent Technologies Inc. ("Lucent"), Siemens AG, L.M. Ericsson Telephone
Co. and NEC Corp. The Company's systems utilize an open systems architecture,
permitting them to interface with other elements of the customer's data
collection network and with virtually any billing processing or other
information management application. The Company's systems also are scaleable,
thereby allowing them to handle a large range of call volumes. The systems can
be configured with proprietary software applications that provide a wide variety
of preprocessing functions such as filtering (extracting data that meet preset
criteria), distribution (directing predetermined data to certain specialized
applications) and reformatting (rearranging input data into a user-defined
output format).
INDUSTRY BACKGROUND
GENERAL
Historically, the telecommunications industry has been characterized by
significant governmental regulation or ownership and limited competition. In
this environment, telecommunications services consisted primarily of local and
long distance telephone service over traditional wirelines. More recently,
deregulation and privatization of telecommunications services have led to
increased intra-industry, cross-industry and geographic competition. In February
1996, the Telecommunications Act of 1996 (the "Telecommunications Act") was
enacted into law in the United States. The stated purposes of the
Telecommunications Act were to reduce regulations, promote competition and
encourage the rapid employment of new telecommunications technologies. The
Telecommunications Act is expected to increase competition in the
telecommunications services market in the United States by allowing local,
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long distance and cable television companies to offer competing services
provided they meet specified regulatory benchmarks.
Internationally, privatization and deregulation are resulting in similar
increases in competition, the emergence of newly authorized telecommunications
service providers and the provision of additional features over a variety of
media. The European Union is scheduled to implement a new regulatory scheme in
1998 that will permit a variety of telecommunications providers to offer
traditional local and long-distance services within each geographic market. In
addition, in February 1997, an agreement was reached through the World Trade
Organization to significantly increase international access to the
telecommunications markets of its 69 member countries, subject to certain
official ratifications. Technological advances and global expansion by
multi-national service carriers are also opening markets in less developed
countries to enhanced telecommunications services and increased competition.
In response to these regulatory changes, many telecommunications service
providers are expected to compete by offering multiple services, including
combinations of local exchange, long distance, wireless and data communications
services to customers in single or multiple geographic markets without the delay
or limitations historically imposed by regulatory approvals. In some local
markets, multiple vendors have already begun to offer competing local exchange
services and the local exchange markets are fragmenting into wholesale and
retail markets.
COMPETITION IN LOCAL EXCHANGE MARKETS
The entry of competitive local exchange companies ("CLECs") into markets
traditionally monopolized by existing or "incumbent" local exchange companies
("ILECs") (in the U.S., typically an RBOC) is expected to increase the need for
all participants in each local market to monitor closely and use effectively all
relevant data regarding each call transaction. Some CLECs are building their own
physical infrastructure of wireline, wireless and other transmission systems
while most other CLECs initially seek to provide dial-tone services to their
customers by purchasing wire access from the ILECs that own the physical
wireline infrastructure. CLECs that are commercial resellers of wire access
rights generally do not have any billing infrastructure of their own, but either
subcontract such services to a service bureau or piggyback on the ILEC's system.
In response to the entry of CLECs and other competitive factors, ILECs have
sought to reduce expenses, often by reducing staff. In addition, ILECs and other
telecommunications providers are seeking to differentiate themselves by
improving existing services and rapidly introducing new services, including
high-speed data services, video teleconferencing, video-on-demand, home shopping
and home banking. The availability of new and enhanced services has fueled a
dramatic increase in usage of telecommunications services by organizations and
individuals placing additional burdens on existing telecommunications
infrastructures. As a result of these factors, an ILEC's billing system must be
increasingly automated to reduce personnel expenses and must meet new demands
for real-time access to transactional and other data by third parties such as
CLECs and their customers and demands for more sophisticated uses of such data.
GROWTH AND CONVERGENCE OF TELECOMMUNICATIONS MARKETS
All segments of the telecommunications services industry are experiencing
change and convergence. Providers of telecommunications services through
traditional wirelines, including providers of local, long-distance, network
access and related services, provide services to approximately 165 million
access lines in the U.S., generating more than $178 billion in revenue in 1995.
Deregulation has spurred the creation of new entrants in both the local and long
distance market and has increased competitive pricing pressures among all
providers. RBOCs and long-distance providers compete with providers of cellular
and other wireless services through the purchase of cellular companies and
licences to offer personal communications services ("PCS"), while such wireline
providers are examining opportunities in the cable market. At the same time,
utility companies are leveraging their existing electrical and fiber optic
infrastructures to provide telecommunications services to their customers. In
addition, on-line service providers, such as Prodigy, America Online and
CompuServe, and the growing use of organization-specific intranets have
generated a large and rapidly growing market for a range of services including
electronic mail, home shopping, news and access to the Internet and other
information, at present largely through existing wireline networks. The
availability of new and enhanced services has fueled a growth in the usage of
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telecommunications services by organizations and individuals, placing additional
burdens on existing telecommunications infrastructures and increasing the demand
by users and services providers alike for accurate transaction information and
effective tools with which to process that information.
As companies enter other telecommunications market segments and the resale
of local exchange services becomes more widespread, there will be an increasing
need for systems that can: (i) handle the interchange of billing and other
information between wholesale and retail providers; (ii) capture additional
transactional and traffic data necessary to optimize the overall wholesale
network configuration; and (iii) enhance Decision Support Systems ("DSSs") that
enable providers to understand their customers better and to deliver new
products to precisely targeted customer segments.
GROWING IMPORTANCE OF DATA MANAGEMENT IN THE TELECOMMUNICATIONS INDUSTRY
The growing complexity of the telecommunications industry increasingly
demands that telecommunications service providers develop more effective billing
processing and other data management systems. As a result of the changes
initiated by the Telecommunications Act, ILECs now must share their physical
infrastructure, including their switches and their related operations support
systems ("OSSs"), with CLECs. Similar changes are occurring in the European
Union and other parts of the world. All participants, whether they be customers
or providers, increasingly demand accurate, real-time information with respect
to each call transaction, whether such information is used for traditional
billing functions or for more advanced marketing and customer-care applications.
Transactional billing, therefore, is no longer a simple process of matching
specific calling events with a single provider's subscriber database. Call
transaction data must be collected, processed and distributed so that they can
be used for multiple purposes by multiple users. Calls reported at a single
switch may be initiated by customers of several different service providers
requiring that data be distributed via different media to several separate
billing and rating services. New features and pricing options adopted by
services providers require that billing data systems perform more processing
steps as sophisticated rating functions require more attention to specific CDR
attributes. Also, providers are increasingly aware of the significance of the
bill as a channel for communicating with the customer. Customer retention can be
enhanced through a clear and readable presentation of relevant billing data that
is useful both to verify charges and to serve other functions for the customer.
Effective billing data collections systems will be especially critical for
ILEC's wholesale operations that interconnect with, and face competition from, a
growing number of CLECs.
Most telecommunications service providers do not currently have in place
billing data collection systems capable of handling the call volumes or the data
processing needs that exist in the current marketplace. Many of the larger
telecommunications service providers have traditionally used billing systems
that were typically mainframe-based, with proprietary software written in early
generation programming languages. As a result, these "legacy" systems were not
designed for rapid deployment or adaptation and are not easily customized to fit
specific business needs. Also, telecommunications service providers often
continue to use a wide variety of switch technologies and to connect these
switches with their billing data collection and data management systems by a
wide range of data transmission media. Legacy systems often cannot be integrated
with other information sources within a provider's organization, or databases
outside an organization. In order to keep pace with the enormous growth in the
number of subscribers, and the proliferation of services offered, the Company
expects telecommunications service providers, including the RBOCs, increasingly
to adopt more flexible OSSs and more sophisticated information services
applications and to attempt to integrate such upgraded systems with their
existing core billing systems. This approach to system enhancement requires that
each provider maintain or have access to a flexible and reliable system for
gathering billing information from all sources, processing the information and
delivering information to the wide variety of systems environments in which its
software applications are executed.
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In this rapidly-changing and competitive environment, telecommunications
service providers increasingly require solutions that:
- offer a high degree of integrity and reliability in billing, customer
communications and customer-care functions;
- enable the delivery of data to a variety of billing and data management
applications on a real-time basis;
- interface with a wide variety of telecommunications switches and integrate
seamlessly with providers' existing billing processing and other
information management systems so that providers can use the data
historically generated solely for billing purposes as an integral part of
their marketing and customer-care efforts and for other strategic
purposes;
- provide scaleable solutions that allow providers cost-effectively to
increase processing capacity and functionality to meet rising call volumes
and more sophisticated data management needs;
- enable providers to monitor, manage and optimize their network
configurations and the flow of traffic over those networks; and
- offer a variety of preprocessing functions that format data downloaded
from switches and transmit the data to information management systems in a
form that enhances the systems' efficiency and functionality.
THE COMPANY'S SOLUTIONS
The Company develops, markets and supports integrated hardware and software
systems that provide comprehensive billing data collection solutions designed to
collect, process and transmit transaction information from a variety of
telecommunications switches to customers' billing processing and other
information management systems. The Company believes that its extensive
experience in supplying products to wireline customers provides it with a
competitive advantage in meeting those customers' current needs.
The Company's billing data collection systems offer solutions that decrease
providers' costs and increase their productivity by incorporating the following
advantages:
- FINANCIAL GRADE RELIABILITY--The Company's systems make available features
that provide "financial grade" reliability (greater than 99.999% system
availability) while also performing various preprocessing functions,
thereby protecting customers against loss of revenues.
- REAL-TIME PROCESSING--The Company's systems can provide real-time
processing (I.E., the ability to process and deliver CDRs within five
minutes of receipt) which is critical to certain advanced applications,
including billing and rating functions, as well as fraud detection and
management and customer care.
- CONNECTIVITY--The Company's engineering expertise acquired through the
Company's 30-year history enables its billing data collection systems to
interface with switches from all major domestic and most major
international wireline switch manufacturers. For telecommunications
companies facing a lack of industry standards for switch interfaces and
data formats, the Company's products provide the ability to standardize
transactional data for use by their data management systems. The Company
plans to develop interfaces to accommodate additional international and
wireless switches, thereby enabling the Company's systems to service
integrated domestic and international wireline and wireless operations.
- OPEN SYSTEMS ARCHITECTURE--The Company's products utilize an overall open
systems architecture that results in several important benefits: (i)
standard interfaces enable the Company's products to connect with other
customer network elements; (ii) adherence to network management protocols
enables the Company's products to be managed as a system; and (iii)
applications programming interfaces developed by the Company enable its
products to interface effectively with the customers'
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applications software. The Company believes that this open design adds
greatly to the value of its products and increases its opportunities in
the marketplace.
- SCALEABILITY--The Company's systems can be configured to handle a wide
range of transaction data volumes, thereby permitting customers to
increase capacity over time on a cost-effective basis. Customers
frequently can reduce their personnel costs and increase productivity
because the Company's systems utilize fewer hardware units than systems
using prior technology, thereby requiring fewer operators.
- FLEXIBLE FUNCTIONALITY AND COST-EFFECTIVENESS--The Company's systems can
be configured with a variety of specialized processing modules to provide
a variety of preprocessing functions, thereby allowing customers to avoid
ongoing adjustments to their mainframe software and to free mainframe
capacity to handle the increased demand that will be placed on billing and
rating systems in the future.
The Company's traffic management system, Manifest,-TM- provides
telecommunications companies with real-time traffic data to detect and locate,
quickly exchange and network problems, plan and route strategically call traffic
through the network, improve the overall quality of service and reduce
significantly customer complaints. The system supports open systems standards
and utilizes an object-oriented graphical-user interface ("GUI") development
tool. It provides flexible traffic measurement and analysis through standard
UNIX and Windows NT reporting tools.
The Company recently introduced a fraud detection and management system
which is its first software applications product that can be utilized separately
from, as well as together with, the Company's systems products. The software
utilized in the product is licensed from a company in the United Kingdom where a
substantially similar product is currently in commercial use.
STRATEGY
The Company's objective is to leverage its position as the leading provider
of comprehensive billing data collection systems to RBOCs to become the leading
provider of those systems and related products and services to
telecommunications and information providers domestically and internationally.
The Company's strategy to achieve this objective includes the following key
elements:
- EXPAND RELATIONSHIPS WITH WIRELINE CUSTOMERS. The Company has addressed
the demand from its domestic and international wireline customers for
increasingly sophisticated billing and other information by introducing
its Sterling Series line of billing data collection products at the end of
1995. Sales to the Company's three main RBOC customers, Ameritech,
Southwestern Bell and U S West, equaled $20.9 million in fiscal 1996. The
Company believes that these customers have replaced less than 25% of their
prior generation billing data collection systems, and that these customers
will replace the balance of their prior generation systems, and purchase
additional products and services from the Company, over the next three to
five years. The Company also believes that there is a significant
opportunity to sell Sterling Series products to other RBOCs and other
wireline customers worldwide.
- CONTINUE TO EXPAND SALES TO NEW TELECOMMUNICATIONS MARKETS. The rapidly
evolving telecommunications business environment is resulting in a large
number of new telecommunications providers that will directly or
indirectly provide opportunities for the Company, including CLECs, long
distance companies, cellular service providers and PCS providers. The
Company is currently installing an initial product delivery for a major
CLEC and has begun selling to an RBOC-affiliated long distance company. In
addition, cable television companies, Internet service providers and
utility companies are beginning to provide telecommunications services.
The Company intends to address the opportunities arising from the new
providers by developing interfaces for wireless switches and by expanding
its product line to make available lower-priced entry-level systems with
functionalities geared to lower volume switches. See "Use of Proceeds."
The Company also plans to
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address these opportunities through the new marketing strategies and new
product and service offerings described below.
- CONTINUE TO DEVELOP MARKETING CHANNELS. In addition to direct sales and
marketing efforts, the Company has begun to market its systems through
indirect channels. The Company has emphasized the establishment of
relationships with switch vendors, systems integrators and billing system
providers. In May 1997, the Company entered into a reseller agreement with
AG Communication Systems Corporation, ("AGCS"), a joint venture between
Lucent and GTE Corporation ("GTE"). The Company also recently entered into
a preliminary memorandum of understanding with a major systems integrator
for the sale of certain Sterling Series products and is negotiating
arrangements with manufacturers of ATM switches that permit greatly
enhanced call processing speeds and volumes. The Company sells to the
wireless market through a supply relationship with another company.
- EXPAND INTERNATIONAL BUSINESS. The Company's products have been sold
internationally since 1972. In 1995, the Company completed a $13 million
contract with Telecom Argentina. Contracts for the sale of an aggregate of
$4.2 million of the Company's products and services to TELESP and another
major Brazilian telecommunications company are currently nearing
completion. The Company intends to develop products to interface with a
broader range of international switches. See "Use of Proceeds." The
Company is expanding its penetration of international markets by forming
relationships with systems integrators and distributors in targeted
countries. The Company is negotiating arrangements with prospective
distribution partners in Indonesia, the Phillippines and France, has
received initial orders from a software development company and a long
distance operator in France, and has signed a distribution agreement with
Mahindra-British Telecom, a company based in India. The Company also
utilizes agents in certain countries including Argentina, Venezuela, the
Phillippines and the Caribbean. In addition, the Company employs three
senior international sales executives and, through its affiliation with
Securicor, has access to business development managers based in Hungary,
Malaysia and South America. See "Certain Transactions."
- EXPAND PRODUCT AND SERVICE OFFERINGS. The Company intends to continue to
expand the functionality of its primary products. By the end of calendar
1997, the Company plans to make available additional reformatting and
distribution capabilities in its Sterling Series systems. The Company
plans to develop additional interfaces for wireless and international
switches and to make available lower-priced entry-level systems. See "Use
of Proceeds." The Company recently introduced its fraud detection and
management system which is its first software applications product that
can be utilized separately from, as well as together with, its systems
products. The Company has also recently upgraded its traffic management
solution to provide features including a graphical user interface,
enhanced application tools, a web browser and compatibility with Windows
NT. The Company also plans to expand its technology service offerings to
make available fast response software engineering services focused on
customers' individualized needs. The Company may also consider developing
interfaces that permit its systems to transmit data from sources other
than telecommunications networks, including possibly other utilities and
cable television systems. The Company intends to consider selective
acquisitions of product and service providers to augment its internal
development efforts.
- RETAIN TECHNOLOGY LEADERSHIP. The Company has developed broad expertise in
its core product areas in the course of serving some of the largest
domestic and international telecommunications providers. The Company
currently employs 72 engineers with over 1,000 years of aggregate
engineering experience. The Company believes that this expertise provides
the Company with a competitive advantage in configuring its systems to
address most effectively its customers' requirements.
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PRODUCTS AND RELATED SERVICES
The Company's principal products are billing data collection systems and
traffic management systems utilized by operators of telecommunications networks.
Telecommunications networks consist primarily of lines (which connect a terminal
device, such as a telephone or modem, with a switch), trunks (which connect two
or more switches) and switches. A telecommunications switch is a computer-based
system that connects users of telecommunications networks. The switch provides a
dial tone to the calling party, routes the call based upon the telephone number
dialed by the calling party, connects the calling and called parties (or
provides a busy signal if the called number is busy), releases all equipment
upon the completion of the call and creates a call detail record ("CDR") of the
call. The Company's billing data collection systems collect, process and
transmit these CDRs from telecommunications switches to the customer's (which
may be an ILEC or CLEC) information management network.
The number of trunks required by any telecommunications network depends
primarily on the number, timing and duration of calls. If a network has too many
available trunks, costs to the operator and users are increased. If a network
has too few available trunks, users are unable to have their calls connected,
resulting in complaints from users and lost revenues to the operator. The
Company's traffic management systems capture information on trunk usage that is
transmitted to the customer's network planners who use the information to try to
plan their networks so that the optimal number of trunks are available at the
appropriate times and at the appropriate places in the network.
[Graphical representation to be inserted of the Company's products showing how
they can be used together as a system in conjunction with the customer's data
generating systems (switches) and billing and transaction data applications. At
the top of the graphic is the following caption: "Axiom-Trademark-absolute value
Product Line."]
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BILLING DATA COLLECTION PRODUCTS
The Company offers an integrated suite of billing data collection products
marketed under the "Sterling Series" name. The individual products that comprise
the Sterling Series are designed to work as a system; however, the Company sells
each component separately so that the system can be configured to meet the exact
needs of the customer. The Sterling Series was introduced by the Company at the
end of 1995 as the successor to its PDU-20 (Pollable Data Unit) and SX5000 (Host
Collector) billing data collection system that the Company introduced in the
1980s as the "SEBX Series." Compared with the SEBX Series, the Sterling Series
provides substantially increased storage capacity and processing power, enhanced
interconnectivity with a wide range of data management systems and increased
speed of network data delivery. For example, the newest version of the Sterling
5000 can process up to 16 million CDRs per hour and the Sterling 500 can process
up to 750,000 CDRs per hour, as compared to four million CDRs per hour for the
SX5000 and 150,000 CDRs per hour for the PDU-20. The storage capacity (per disk)
of the newest version of the Sterling 5000 is up to four times that of the
SX5000 and the storage capacity of the Sterling 500 is up to ten times that of
the PDU-20. Sales to the Company's three main RBOC customers equaled $20.9
million in fiscal 1996, a large majority of which is attributable to sales of
Sterling Series products. The Company believes that its three largest customers,
Ameritech, Southwestern Bell and U S West, have replaced in the aggregate less
than 25% of their prior generation billing data collection systems, and that
these customers will replace the balance of their prior generation systems, and
purchase additional products and services from the Company, over the next three
to five years. The Company also believes that there is a significant opportunity
to sell Sterling Series products to other RBOCs and other wireline customers
worldwide.
The Sterling Series is a highly flexible system that offers a number of
important features that are designed to assist the customer to make its billing
data collection system more reliable and less costly to operate:
- REDUNDANCY AND RELIABILITY. The structure of the Sterling Series permits
it to be "redundant," I.E., when one of its processing systems fails, the
Sterling Series has the ability to redirect data gathering, processing and
distribution functions to other parts of its system and take proper steps
to recover data lost when the original failure occurred. The redundancy
and audit features enable the Sterling Series to provide "financial grade"
reliability (greater than 99.999% system availability).
- AUDIT AND ALARM FEATURES. The Sterling Series has an "audit" feature that
enables it to identify problems and inconsistencies in the CDRs and recall
data that has been lost or misplaced in the CDR generating source or any
other part of the billing data collection system. The Sterling Series is
also equipped with alarms that can be programmed to notify systems
operators of the existence of data problems as they occur.
- REAL-TIME ACCESS. The Sterling Series permits transactional data to be
copied and processed early in the processing cycle so that a wide variety
of users can gain real-time access to data (I.E., the ability to process
and deliver CDRs within five minutes of receipt) without disrupting the
integrity of the stream of billing information.
- CONNECTIVITY. The Sterling Series has the ability to gather and process
information from a wide range of telecommunications switches, including
switches utilizing older or "legacy" technologies. The Sterling Series can
be adapted to interface with wireless switches and is capable of
supporting both U.S. and international billing data specifications.
- OPEN SYSTEMS ARCHITECTURE. The Sterling Series utilizes standard
interfaces to permit connection with other elements in the customer's data
collection network. These products also use network management protocols
that allow them to be managed as a system. Applications programming
interfaces developed by the Company enable its products to interface
effectively with customers' applications software.
- SCALEABILITY. The Sterling Series has a multi-processor architecture which
is "scaleable," meaning that users can add additional components to
significantly upgrade its processing power and
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<PAGE>
functions. These "scaleability" features therefore can reduce a customer's
need to invest in new systems to handle increased CDR volumes and
specialized processing requirements.
- MODULARITY AND FLEXIBILITY. The system is modular in design, and can be
configured to perform a number of user-specified applications by employing
the Company's specialized processing modules. By using specialized
processing modules to perform user-defined preprocessing functions at the
billing collectors, users of the Sterling Series can reduce the work
performed by their core billing systems, significantly increasing the
overall processing speed and performance of the billing management system.
- REMOTE ACCESS. The Sterling Series permits the customer to manage from a
centralized location billing data collection activities at remote
automated facilities. The ability to manage so-called "darkroom"
facilities at remote sites allows customers to reduce labor costs.
The core components of the Sterling Series are the Sterling 500 data server
and the Sterling 5000 billing data collector, each of which can be configured
with a variety of specialized processing modules. The Sterling Series is
controlled through the Company's Sterling Manager software that runs on the
Sterling 5001 workstation. The Sterling Series also includes the Sterling 5410
data distribution platform. These components of the Sterling Series are
described in further detail below.
STERLING 500. The Sterling 500 is a data server that consists of a
processor unit equipped with a UNIX-based operating system. The Sterling 500
typically interfaces with between one and four switches to obtain all
transactional data generated by the switches. The Sterling 500 can be configured
on a fully redundant basis and shares many capabilities with the Sterling 5000
described below, such as the ability to support multiple switches and switch
interfaces, scaleability and compatibility with a wide range of local-and
wide-area-network environments.
STERLING 5000. The Sterling 5000 is a centralized billing data collector
that collects transactional data (primarily CDRs) from data servers, such as the
Sterling 500, or directly from up to 200 telecommunications switches or other
CDR generating sources. The Sterling 5000 consists of a multi-processor Hewlett-
Packard Co. ("Hewlett-Packard") computer equipped with specialized software. The
Sterling 5000 is equipped with specialized input interfaces which permit the
unit to collect data from a wide variety of switch and server types. After the
data is collected, the Sterling 5000's resident preprocessing software reformats
the CDRs into a normalized format which facilitates further processing, storage
or delivery to other data management systems.
The Sterling 5000 processes the normalized CDRs through a number of
applications, some of which are standard features of the Sterling 5000 and some
of which are provided by specialized processing modules that the Company sells
separately. The following processing modules are loaded on the Sterling 5000 as
standard features.
- The Copy Module generates a duplicate output file in real time from any
output file, thereby enabling customers to distribute duplicate data
streams to other applications while leaving the primary data stream intact
for transmission to, and use by, the rating and billing process.
- The Terminator Module allows customers to create a user-defined output
file that receives a copy of the CDRs generated by another processing
module and provides for the distribution of such output files on a
schedule or on a demand basis using standard file transfer protocols.
- The Daily Volume Tracking Module enables customers to create reports on
the daily volume of CDRs.
Although the Company recommends that RBOCs and most other customers purchase
a system that utilizes Sterling 500s to transmit data from switches to one or
more centrally-located Sterling 5000s that transmit data to the customer's host
billing system, Sterling 500s and 5000s can be installed in a number of
configurations depending on the processing needs and the budget constraints of
the customer. Sterling 500s can be installed alone to transmit normalized CDRs
gathered from the switches directly to the billing system. Similarly, Sterling
5000s can be installed alone to gather transaction information directly from the
switch without the need for intermediary preprocessing steps.
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<PAGE>
STERLING 5001; STERLING MANAGER. The Sterling 5001 is a workstation
equipped with GUI-based software that provides communication, command and
control capabilities for a network of one or more Sterling 5000s and Sterling
500s. The Sterling 5001 is generally used in combination with the Company's
Sterling Manager software product, which can be easily adapted to interface with
additional Sterling and non-Sterling hardware and software products. With
easy-to-use "point and click operation," the Sterling 5001 optimizes systems
control and enables the customer's personnel to manage from remote locations
data collecting, processing and distributing functions performed by equipment
installed at fully automated facilities. By combining the ability to manage
remote operations with the advantages of a user-friendly interface, the
Company's products help its customers to control their personnel-related costs.
STERLING 5410. The Sterling 5410 is a UNIX-based data distribution platform
designed to receive CDR data from other Sterling Series products and perform
independent data processing. The Sterling 5410 offers end users full access to
that data while, at the same time, maintaining a security "firewall" between
these external users and the revenue-critical billing system directly supported
by other Sterling Series products. The platform has the further advantage of
being able to aggregate data from several Sterling 5000s and 500s by
communication through a provider's own network file servers. Currently, the
primary application of the Sterling 5410 permits ILECs to provide call detail
data to their Centrex customers.
SPECIALIZED PROCESSING MODULES ("SPMS"). The Company offers purchasers of
the Sterling 500 and 5000 the power to build quickly and easily their own
applications by using Company-designed software modules called SPMs. SPMs are
user-defined transaction processing functions for exclusive use on the Sterling
Series billing data collection products that offer a rules-based approach to
building processing features. Each SPM performs a unique operation on the
transaction data, but SPMs can be implemented in groups with defined
interactions among the separate modules. Configurations of these groups of
modules can be designed, enabled and disabled by customer personnel using a
convenient graphical display, thereby reducing the need for costly and
time-consuming revisions to customers' application software systems.
SPMs can be grouped to perform customer-defined applications. For example, a
customer could combine the Filter and Distribution Modules to select and deliver
to an outside fraud management system only those CDRs that are most likely to
involve fraud. This screening and real-time forwarding of the data may offer
customers the ability to reduce the processing requirements placed on a fraud
management system thereby improving its real-time performance.
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<PAGE>
The following is a summary of the Company's SPM offerings:
<TABLE>
<CAPTION>
STERLING
NAME OF MODULE MODEL NO. DESCRIPTION
<S> <C> <C>
Filter 5110 Selects and copies individual CDRs using
filtering criteria that are user-defined
and that can be derived from any logical
combination of fields within each CDR
identified by type, origination,
destination, length of call and other
criteria.
Call Screening Collector/Message Detail 5120 Provides flexible and cost-effective
Recording deployment of records of a
telecommunications station providing
Centrex service, includes applications
to report station-specific call details
for end-users of Centrex service and
provides the flexibility to add or
delete screening functions.
Distribution Module 5130 Provides for the automatic disposition
of files resulting from specialized
processing of call records with output
capable of being generated in many
forms, including "mounting" data on a
network file server, E-mailing, faxing
and exporting to databases.
Reformatter 5140 Accepts a user-defined record input and
reformats the input to a user-defined
output format where input and output
rules can be updated or modified by the
user.
File Router 5180 Routes the transactional data stream
based on the data source location,
providing processing at the level of
entire files in contrast with the Filter
SPM which provides processing of each
individual CDR.
</TABLE>
TRAFFIC MANAGEMENT PRODUCTS
The Company provides a comprehensive traffic management system under the
name Manifest-TM- (formerly Autrax 5000). This product provides
telecommunications companies with real-time (I.E., the ability to process and
deliver data within five minutes of receipt) traffic data to detect and locate
quickly exchange and network problems, plan and route strategically traffic
through the network, improve the over-all quality of service and reduce
significantly customer complaints. The Manifest-TM- traffic management system
features a GUI-based system with cross-platform (Windows NT and UNIX)
capabilities, compliance with the Open Database Connectivity standard, a
function to permit its reports to be accessed by a web browser and an adaptive
normalizer which permits greater customer flexibility in report creation.
Many large telecommunications service providers in the United States, such
as the RBOCs, developed their own traffic management systems. These systems
typically have not been significantly upgraded or improved in nearly a decade.
With demand for wireline telecommunications services increasing rapidly, as
evidenced by the increasing demand by businesses and private households for
Internet access through wirelines, ILECs and other owners of wireline systems
increasingly will demand more sophisticated traffic
36
<PAGE>
management tools. Also, increasing competition in each market segment creates
the need for products that can accurately measure and report inter-company
transactions and facilitate settlements between telecommunications service
providers. Similarly, privatization and other competitive factors have increased
the need of international telecommunications service providers for more
sophisticated traffic management systems.
The Company's traffic management system consists of a Hewlett-Packard-based
hardware platform loaded with Company-developed software. The system collects
and processes traffic information from a wide array of switch technologies,
including digital, analog and cellular switches and traffic management system
points in the service provider's signal control system, such as the RBOCs'
Signaling System 7. The system interfaces directly with the switches to collect
traffic data and generate maintenance reports in a standard database format. The
Manifest-TM- traffic management system centralizes the raw data into database
tables so that standard and customized reports can be generated. As with the
Sterling Series billing data collection products, the Manifest-TM- traffic
management system is fully scaleable, permitting easy upgrades to meet rising
system demands.
NEW PRODUCTS AND SERVICES
Under the name "alpha Technology Services," the Company recently commenced
offering professional engineering services to its customers to assist them to
make better use of the Company's products. The Company's engineers assist
telecommunications services customers to develop customized applications
programs and introduce them to product feature enhancements. Services include
developing: user interfaces, system interfaces and network and alarm system
management interfaces; custom filters to screen call data used in fraud
management and other processing applications; and software for custom data
handling, reformatting and report generation. The Company believes that its
technology services are important in demonstrating the Company's responsiveness
to the needs of its customers.
The Company recently introduced its first software application for use
outside of, or together with, its billing data collections system: a fraud
management program. This product is designed to assist providers in detecting
and managing fraudulent use of telecommunications systems which is estimated to
have resulted in $3.3 billion of lost revenues among wireline and wireless
services providers in the United States in 1994. The software for this product
has been obtained by the Company from an outside software development firm
pursuant to a license that grants the Company exclusive rights for the software
in the United States and Canada and non-exclusive rights elsewhere worldwide
through October 1999 and thereafter until terminated by either party upon three
months notice. The licensor's products are currently in commercial use in the
United Kingdom.
In the future the Company will consider introducing new software
applications that are compatible with its other billing data collection and
traffic management products. The Company may also consider developing interfaces
that permit its systems to transmit data from sources other than
telecommunications networks, including possibly other utilities and cable
television systems. There is no assurance, however, that any of these products
will be successfully developed or marketed.
CUSTOMERS
GENERAL
The Company's customers include large telecommunications companies based in
a number of countries around the world. In fiscal 1996, the Company sold
components of its Sterling Series to three of the RBOCs, U S West, Ameritech and
Southwestern Bell, and provided product support services to three other RBOCs.
37
<PAGE>
The following table sets forth information with respect to sales to certain
major customers during fiscal 1995 and fiscal 1996.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996
----------------------------------- --------------------------------
PERCENTAGE OF PERCENTAGE OF
CUSTOMER REVENUES TOTAL REVENUES REVENUES TOTAL REVENUES
- ----------------------------------------------------- ------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U S West............................................. $7.3 million 28.7% $10.2 million 30.1%
Southwestern Bell.................................... $1.5 million 5.8% $6.3 million 18.5%
Ameritech............................................ $4.3 million 16.7% $4.4 million 13.0%
Puerto Rico Telephone Co............................. $0.1 million 0.4% $3.2 million 9.4%
Telecom Argentina.................................... $4.4 million 17.0% $1.2 million 3.4%
</TABLE>
The Company generally enters into agreements with its major customers that
establish a framework for the ongoing relationship. Individual orders are placed
pursuant to purchase orders. Installation, maintenance and support services are
typically charged separately from product purchases. The Company has ongoing
informal communications with these customers based upon which the Company can
estimate the amount and timing of orders and can plan production accordingly.
International sales are generally obtained pursuant to contracts that cover all
applicable products and services for the entire project.
RBOC CUSTOMERS
The Company currently provides products or services to six RBOCs, three of
which are currently major customers: Ameritech, Southwestern Bell and U S West.
AMERITECH. The Company has sold billing data collection products to
Ameritech since its formation from local units of the old Bell System in 1984.
Predecessors of Ameritech had been customers of the Company since 1972.
Ameritech and its predecessors have purchased over 400 PDU-20 units. To date,
Ameritech has purchased eight Sterling 5000s and over 40 Sterling 500s.
SOUTHWESTERN BELL. The Company's relationship with Southwestern Bell began
in 1989 and has recently resulted in sales of five Sterling 5000s and over 50
Sterling 500s.
U S WEST. The Company initiated its sales to U S West when U S West was
formed in 1984. Predecessors of U S West had been customers of the Company since
1972. U S West and its predecessors have purchased over 400 PDU-20 units. U S
West has purchased 15 Sterling 5000s and over 90 Sterling 500s. One of the
Company's sales executives and one of the Company's technical staff is based in
Denver, Colorado, the location of U S West's corporate headquarters, where each
dedicates his working time exclusively to developing and maintaining the
Company's relationship with U S West.
OTHER MAJOR CUSTOMERS
TELECOM ARGENTINA. In 1995, the Company completed a $13 million contract
entered into in 1992 with Telecom Argentina pursuant to which the Company
installed 136 PDU-20 units and three SX 5000s. The Company continues to provide
ongoing support and engineering services to Telecom Argentina pursuant to
contracts totaling $1.4 million for fiscal 1997.
PUERTO RICO TELEPHONE CO. The Company has sold products to Puerto Rico
Telephone Co. since 1993. To date, the Company has sold over 30 Sterling 500s
and one Sterling 5000 to Puerto Rico Telephone Co.
TELESP. In January 1995, the Company began supplying its products to
TELESP, a major regional telecommunications service provider in Brazil. Through
an agency agreement with a Brazilian telecommunications solutions company, the
Company has supplied hardware and software components of a traffic management
system and related services to TELESP. To date, the Company has earned $3.2
million in revenues under this contract.
BACKLOG
The Company's backlog (firm purchase orders for products and services that
have not yet been recognized as revenue) was approximately $7.1 million and $5.3
million on March 31, 1997 and March 31, 1996, respectively. The Company normally
has a relatively small amount of product and service backlog
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<PAGE>
because ongoing informal communication with its major customers generally
enables the Company to anticipate orders and ship products within a relatively
short time after the customer's order is received. The Company expects to be
able to fill substantially all backlog existing at March 31, 1997 prior to the
end of fiscal 1997. Backlog with respect to RBOC sales typically is the greatest
at the end of the third quarter of each fiscal year, due to the RBOCs' budget
cycles. RBOCs generally do not order products such as those sold by the Company
for delivery beyond their current fiscal year.
SUPPLY RELATIONSHIPS
The Company purchases and licenses products and technology from a variety of
providers. The Company purchases Hewlett-Packard hardware and software that is
used primarily for its Sterling 5000 and traffic management product through an
agreement with a major Hewlett-Packard distributor. The Company licenses the
real-time operating system used in the Sterling Series from Lynx Real-Tool
Systems, Inc., software for its traffic management product from Informix
Software, Inc. and the software for its recently introduced fraud detection and
management product from a private United Kingdom company. The Company also
purchases processing boards for its Sterling 500s and other products from
Motorola, Inc. through a distributor.
MARKETING AND SALES
The Company's sales to date have primarily been generated through the
establishment and maintenance of long-term relationships with several key
customers. The Company's domestic sales staff consists of seven account managers
with an aggregate of over 150 years of telecommunications sales experience.
Sales have been generated primarily through direct contacts with major
customers, requests for proposals from telecommunications companies,
participation in trade shows and industry conferences and advertisements in
trade journals. The Company also maintains an Internet home page as an adjunct
to its marketing activities.
DOMESTIC MARKETING CHANNELS
In addition to direct sales to telecommunications service providers such as
the RBOCs, CLECs and major wireline and wireless telecommunications service
providers, the Company is seeking to broaden its access to its markets through
distributor relationships with systems integrators and marketing relationships
with switch vendors and billing and rating system providers.
In May 1997, the Company entered into a reseller agreement with AGCS, a
joint venture between Lucent and GTE. AGCS is a developer and manufacturer of
telecommunications switches and OSS products. The agreement provides for AGCS to
resell the Company's Sterling Series products. The Company also recently entered
into a preliminary memorandum of understanding with a major systems integrator
for the sale of certain Sterling Series products. The Company is also
negotiating arrangements with manufacturers of ATM switches pursuant to which
the Company would provide software engineering services and license software to
the ATM companies that would also sell the Company's products, on a distributor
basis, as part of their ATM switch systems. The Company also sells to the
wireless market through its supply relationship with Metapath Corporation
("Metapath"), of which the Company was previously a stockholder. The Company
supplies a product equivalent to its Sterling 500 to Metapath which is
incorporated into that company's solutions for both cellular and PCS providers.
The Company is developing interfaces for wireless switches that would permit
direct sales to this market in the future.
INTERNATIONAL MARKETING CHANNELS
The Company's products have been sold internationally since 1972. In 1995,
the Company completed a $13 million contract entered into in 1992 with Telecom
Argentina and entered into contracts to sell an aggregate of $4.2 million of its
products and services to TELESP and another major Brazilian telecommunications
company that are nearing completion. The Company continues to provide ongoing
support and engineering services to Telecom Argentina pursuant to contracts
totaling $1.4 million for fiscal 1997. The Company intends to expand its
penetration of international markets by forming relationships with systems
integrators and distributors in targeted countries. The Company recently entered
into a distributorship
39
<PAGE>
agreement with Mahindra-British Telecom, a company based in India. The Company
is negotiating arrangements with prospective distribution partners in Indonesia,
the Phillippines and France pursuant to which the distributor would provide
sales, marketing, installation and first-line and second-line support functions
and the Company would provide product, training, marketing documentation and
third-line support functions. The Company recently received initial orders from
a software development company and a long distance operator in France. The
Company also utilizes agents in certain countries, including Argentina,
Venezuela, the Phillippines and the Caribbean, who are compensated on a
commission basis. In addition, the Company employs three international sales
managers and, through its affiliation with Securicor, has access to business
development managers based in Hungary, Malaysia and South America. See "Certain
Transactions."
CUSTOMER SERVICE
The Company operates an integrated Customer Service Group that it believes
is a key to success with both current and potential new customers. The Customer
Service Group consists of Quality Assurance, Program Management, Support
Services, Customer Training, Documentation, Installation and Information
Technology subgroups. The Company's installation team, which includes both
full-time and sub-contract staff, is certified to work in the central office
switch environment and can install full turn-key systems. The Company achieved
ISO 9001 certification in August 1996 and has since passed an interim audit.
A senior program manager is responsible for administering all aspects of
major contracts and other projects, including acting as contact person and
coordinator for the customer. The Company believes that this results in more
efficient project administration, greater customer satisfaction and often
additional sales opportunities during the course of contract implementation.
Through its Technical Assistance Center, the Company offers 24-hour help
desk support to anywhere in the world, 365 days per year. The technical support
offered by the Company includes remote testing and management capabilities, as
well as on-site problem resolution when required. Training is offered both at
the Company's facilities and on the customers' premises. Internationally, the
Company contracts with local agents or distributors so that it can offer local
support on a basis consistent with its domestic standards. The Company has also
begun to provide on-line documentation and training for its products.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are directed towards
developing new products to meet the growing needs of its telecommunications
customers and entering new markets and improving existing products by
incorporating new features and technologies. The Company believes that the
timely development of new products and enhancements is critical to its
maintaining its leadership position in its current marketplace and in gaining
penetration in new markets.
The Company plans to use a portion of the proceeds of the Offering to expand
its Sterling Series product line in order to address more effectively the
requirements of lower volume telecommunications switches and to develop
interfaces with switches utilized by wireless and international
telecommunications systems. See "Use of Proceeds." These efforts will build upon
a large amount of development work already accomplished in connection with the
Company's existing products.
To leverage its development resources, the Company works closely with its
customers and leading technology vendors to identify specific needs and tailor
the Company's systems to meet these needs. The Company's research and
development organization consists of several major groups. The architectural
group is responsible for the creation and enhancement of the key technologies
underlying all applications. This group is also responsible for exploring new
directions and applications of the Company's core technologies, incorporating
standard technology into existing product lines and developing and improving the
application architecture to facilitate rapid development of applications. Each
of the product lines has a dedicated software engineering group directly
supporting its development efforts. These software development groups are
supported by a hardware engineering group that is responsible for the
development of cross product line hardware platforms. The special projects
engineering group is responsible for addressing
40
<PAGE>
individual customers' specialized requirements. The Company has also formed a
new technologies group to evaluate emerging technologies and provide input on
the upgrading of existing products and the development of new products.
The Company also has entered into a relationship with Mahindra-British
Telecom in India, pursuant to which that company performs software development
projects for the Company. The Company believes that this relationship provides
it with additional flexibility in developing its products on a timely and cost-
effective basis.
A critical element of the Company's success has been the development of a
multi-layered software and hardware architecture that facilitates the
development of application software. This architecture supports the development
of the Company's core products and provides a discrete platform that enables the
rapid development of customer- and product-specific software. In addition, the
Company's core products fully support application programming interfaces which
open up the architecture so that third-party developers can integrate their
application software packages into the Company's system.
At the most fundamental layer of its architecture, the Company has written a
common independent library of code that provides a foundation for reusability.
Together with the use of UNIX operating systems which comply with UNIX95
standards as well as the use of the C programming language in its applications
software development, the Company has positioned its products to be portable and
to be able to operate on the most suitable hardware platforms for its customers'
needs.
During fiscal 1995, fiscal 1996 and the six months ended March 31, 1997,
product research, development and engineering expenses were $5.9 million, $7.0
million and $3.8 million, respectively. Product research, development and
engineering expenses are expected to increase in fiscal 1997. None of the
research, development and engineering expenses has been capitalized. As of March
31, 1997, the Company employed 75 people in product and systems development. The
Company has added 23 engineering, programming and development personnel since
January 1, 1996.
COMPETITION
The market for billing data collection and traffic management services for
the telecommunications service industry is highly competitive and the Company
expects that further growth within the telecommunications service industry will
encourage the entry of new participants into U.S. and international markets in
the future. Many of the Company's current and potential future competitors have
significantly greater financial, technical and marketing resources than the
Company.
The Company believes that the principal basis of competition in the sales of
its products is functionality, including such factors as the ability of products
to provide a high degree of integrity of transaction information while
efficiently performing all preprocessing and delivery functions; the ability to
increase capacity and add functionality cost-effectively; the ability to provide
critical data on a real-time basis; compatibility with telecommunications
switches sold by a number of manufacturers; and the ability to interface
effectively with a variety of billing and other applications. Other significant
bases of competition include price and service.
In the market for its billing data collection solutions, the Company's
competitors include (i) large telecommunications service providers that
internally develop full system products for their own use; (ii) companies, such
as ACE*COMM Corporation, CGI, Inc., Lucent and Northern Telecom Inc., that can
supply billing data collection components and systems; and (iii) vendors that
supply product components or systems integration services, including Andersen
Consulting, Digital Equipment Corporation, Hewlett-Packard and International
Business Machines Corp.
In the market for its traffic management solutions, the Company's
competitors include (i) large telecommunications service providers that
internally develop full system products for their own use; (ii) companies such
as Hewlett-Packard and Objective Systems Integrators, Inc. that provide
integrated network management systems and (iii) companies such as Applied
Digital Access that provide separate traffic management solutions.
41
<PAGE>
There are a large number of companies that have developed or could develop a
product competitive with the Company's fraud detection and management product.
The Company believes that most large telecommunications companies are currently
utilizing internally developed fraud management systems.
PROPRIETARY RIGHTS AND LICENSES
The Company relies primarily on copyright and trade secret laws to protect
its proprietary rights. The Company distributes its products under service and
software license agreements which typically grant customers non-exclusive
licenses, subject to terms and conditions prohibiting unauthorized reproduction,
transfer or use. Although the Company holds patents with respect to certain
aspects of its products, it does not believe that these patents are material to
its business. The Company believes that, because of the rapid pace of
technological change in the telecommunications and computer software and
hardware industries, the technological expertise of its personnel, the
complexity of its system architecture and the frequency and timeliness of
product and service offerings are more significant than the legal protection of
its products and services. In addition, the Company enters into non-disclosure
agreements with each employee and consultant and each third-party to whom the
Company provides proprietary information. Access to the Company's core source
code is greatly restricted. The Company licenses from third parties software and
technology that is important to certain functionalities of its products,
including the software that is the basis for its recently introduced fraud
detection and management application. See "--Products and Related Services--New
Products and Services." The Company is not aware of any patent infringement or
any violation of other proprietary rights claimed by any third party relating to
the Company or the Company's products other than a letter dated June 19, 1997
from Acxiom requesting that the Company cease using the name "Axiom." Although
the Company believes that the claims of Acxiom, an Arkansas-based provider of
marketing information services, are without merit because of the lack of
correspondence between the products, services and customers of the two
companies, there is no assurance that these claims will be resolved on terms
favorable to the Company. See "Risk Factors--Dependence on Proprietary
Technology."
EMPLOYEES
As of March 31, 1997, the Company had a total of 197 employees, of whom 75
were engaged in engineering, programming and development, nine in marketing, 40
in customer service, 21 in sales and sales support, 39 in manufacturing and
related operations and 13 in administration and finance. At that date, the
Company also engaged nine individuals on a consulting basis, six of which were
engaged in engineering, programming and development. None of the Company's
employees is represented by a labor union. The Company believes that its
relations with its employees is good.
PROPERTIES
The Company's headquarters is located in a 40,000 square foot leased
facility in Moorestown, New Jersey and its manufacturing group is located in an
adjoining 34,000 square foot leased facility. The leases for the facilities
expire in April and August 1998, respectively, with the Company having options
to renew for an additional five years. The Company believes its existing
facilities are adequate for its current needs, but that additional space will be
required for its headquarters by late 1997. The Company is currently evaluating
proposals for relocating the Company's operations to another leased facility in
the Moorestown area.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The individuals who serve or who have agreed to serve as executive officers
and directors of the Company upon completion of the Offering are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Edmund A. Hough........................... 52 Chairman of the Board
Andrew P. Maunder......................... 40 President, Chief Executive Officer, Treasurer and Director
Donald Hoffman............................ 62 Senior Vice President, Strategic Customer Development
William J. Rahe, Jr....................... 50 Vice President, Engineering
Mark J. Kadish............................ 43 Chief Financial Officer and Secretary
Michael S. Farina......................... 45 Vice President, Marketing and Sales
Joseph F. Gorecki......................... 56 Vice President, Program Management and Customer Service
Robert B. Kelly........................... 40 Director
Sammy W. Pearson.......................... 51 Director
Trevor Sokell............................. 56 Director
Michael G. Wilkinson...................... 46 Director
</TABLE>
The following descriptions of positions held in the Company include
positions held with STI prior to its merger with the Company in May 1997 as
described under "The Company."
EDMUND A. HOUGH has been Chairman of the Company's Board of Directors since
July 1994. Dr. Hough has served as Chief Executive Officer of the Communications
Division of Securicor since June 1992. Dr. Hough was the Managing Director of
Johnson Matthey Europe Limited, from 1989 to May 1992 and the Managing Director
of Hoeschst Paint Group Limited from 1985 to 1989. Dr. Hough is a director of
Securicor, Chairman of the Board of Intek Diversified Corporation ("Intek"), a
U.S.-based wireless communications company in which Securicor has a 63%
interest, and a director of Cellnet Group Limited, a U.K.-based mobile telephone
operator in which Securicor has a 40% interest.
ANDREW P. MAUNDER has served as the Company's President and Chief Executive
Officer since October 1994 and as the Company's Treasurer since March 1995. Mr.
Maunder has been a director of the Company since October 1996. From March 1994
until he joined the Company, Mr. Maunder served as Chief Financial Officer of
Oxford Molecular Group plc, a biotechnology company based in the United Kingdom.
From April 1987 until February 1994, Mr. Maunder was Finance and Operations
Director of Securicor 3Net, Ltd., ("3Net"), a communications company based in
the United Kingdom that has been affiliated with Securicor since August 1993.
From October 1996 to May 1997, Mr. Maunder also served as a director of
Securicor 3Net, Inc. ("3Net Delaware"), a wholly-owned indirect subsidiary of
Securicor.
DONALD HOFFMAN has served as the Company's Senior Vice President, Strategic
Customer Development since February 1997. From July 1996 to February 1997, Mr.
Hoffman served the Company as Senior Vice President. From July 1994 until June
1996, Mr. Hoffman served as Vice President, Sales of the Company and from the
time he joined the Predecessor Business in 1989 until its acquisition by the
Company in July 1994, he served as its Vice President of Marketing and Sales.
Prior to joining the Predecessor Business, Mr. Hoffman was Vice President and
General Manager of the Business System Sales Division of NEC America, Inc., a
leading electronics company.
43
<PAGE>
WILLIAM J. RAHE, JR. has been the Company's Vice President, Engineering
since joining the Company in April 1995. From August 1994 until April 1995, Mr.
Rahe served as Director, Business Development of Cable & Wireless, Inc., a
telecommunications services company. From June 1991 until August 1994, Mr. Rahe
had served as Director, Product Development at Cable & Wireless, Inc. Prior to
joining Cable & Wireless, Inc., Mr. Rahe was Vice President of Engineering of
Lightnet, a partnership between CSX Corporation and Southern New England
Telephone Co.
MARK J. KADISH has been with the Company and the Predecessor Business since
September 1987 and has been the Company's Chief Financial Officer since February
1997 and its Secretary since March 1995. From July 1994 to February 1997, Mr.
Kadish served as the Company's Financial Controller. From September 1987 until
June 1994, Mr. Kadish served as the Controller of the Predecessor Business.
Prior to joining the Predecessor Business, Mr. Kadish was Chief Financial
Officer and Treasurer of Transducer Systems, Inc., a publicly-traded
manufacturer of computer systems components.
MICHAEL S. FARINA has served as the Company's Vice President of Marketing
and Sales since February 1997. From January 1995 until February 1997, Mr. Farina
was the general manager of the New Media business unit established by
CSC--Communications Industry Services, a division of Computer Sciences
Corporation that is a supplier of information technology to the telephone
industry. From 1988 to December 1994, Mr. Farina held several positions, most
recently as Director of International Marketing and Strategic Alliances, with
GTE Corporation ("GTE"), a diversified telecommunications company.
JOSEPH F. GORECKI has served as the Company's Vice President, Program
Management and Customer Service since April 1995. From February 1992 until April
1995, Mr. Gorecki served at GTE as a Senior Program Manager in GTE's Spacenet
satellite communications group. Prior to joining GTE, Mr. Gorecki served as
Director, Program Operations for BBN Communications Corporation, a
publicly-traded provider of networking solutions.
ROBERT B. KELLY has consented to become a member of the Company's Board of
Directors upon completion of the Offering. Mr. Kelly has been a principal in the
Washington, D.C. law firm of Kelly & Povich, P.C. since its formation in October
1994 and currently serves as telecommunications counsel to Securicor. Mr. Kelly
was a partner in the Washington D.C. firm of Piper & Marbury from January 1989
to March 1992, was a sole practitioner from March 1992 to February 1993 and was
a principal in the firm of Kelly, Hunter, Mow & Povich, P.C. from February 1993
to October 1994. Mr. Kelly is a director of Intek.
SAMMY W. PEARSON has been a director of the Company since October 1996.
Since February 1994, Mr. Pearson has been the Vice President, Enterprise
Solutions of Oracle Government Services, a business unit of Oracle Corporation,
a provider of advanced software products, services and management solutions.
From May 1992 until February 1994, Mr. Pearson was Vice President of Oracle
Federal Consulting, where he managed Oracle's Federal government consulting
business. From May 1991 to May 1992, Mr. Pearson was the principal of TechSales
Limited, a software marketing company.
TREVOR SOKELL has served as a director of the Company since July 1994. Mr.
Sokell served as the Company's President and Chief Executive Officer from July
1994 until October 1994 and served as the Company's Treasurer and Secretary from
July 1994 until March 1995. Since November 1996, Mr. Sokell has been the
Chairman of the Board of Directors of 3Net. Mr. Sokell is expected to resign his
position with 3Net in the near future. From January 1987 until October 1996, Mr.
Sokell served as Managing Director of 3Net. Since October 1994, Mr. Sokell has
also served as the Chairman of Securicor Telecoms Ltd., an affiliated company
based in the United Kingdom. Prior to 1987, Mr. Sokell was a director of
Netlink, Ltd., managing director of Network Technology Limited, and a director
of Information Technology Ltd.
MICHAEL G. WILKINSON has been a director of the Company since July 1994. Mr.
Wilkinson has been the Finance Director of the Communications Division of
Securicor since September 1992. From 1987 to September 1992, Mr. Wilkinson was
Finance Director of Securicor's Business Services Division. Prior to joining
Securicor in 1980, Mr. Wilkinson served as a Finance Director of RCA Limited, an
electronics company based in the United Kingdom.
44
<PAGE>
COMMITTEES
The Board of Directors intends to establish a Compensation Committee and an
Audit Committee. The Compensation Committee will determine salaries and bonuses
and other compensation matters for officers of the Company, determine employee
health and benefit plans, and administer the Company's 1997 Stock Incentive Plan
and any similar plans created in the future. The Audit Committee will recommend
the appointment of the Company's independent public accountants and will review
the scope and results of audits, internal accounting controls and tax and other
accounting related matters.
Messrs. Pearson and Sokell are expected to become the members of the Audit
Committee. Dr. Hough and Mr. Pearson are expected to become the members of the
Compensation Committee.
DIRECTOR COMPENSATION
Each of the Company's directors, other than Mr. Maunder, will be entitled to
receive an annual fee of $20,000 for their service on the Board of Directors. In
addition, each director will be entitled to reimbursement of travel and other
expenses incurred in connection with their service as a director. Pursuant to
employment arrangements between Securicor and Dr. Hough and Mr. Wilkinson, their
directors' fees will be paid to Securicor. Messrs. Pearson and Sokell have each
been granted options to purchase 5,000 shares of Common Stock. See "--1997
Incentive Stock Plan." The law firm of which Mr. Kelly is a principal acts as
telecommunications counsel to Securicor.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid or accrued by the Company for fiscal 1996 to the Company's
Chief Executive Officer and to the four most highly compensated executive
officers of the Company whose salary and bonus for fiscal 1996 exceeded $100,000
for all services rendered in all capacities to the Company (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION -----------------------
NAME AND PRINCIPAL --------------------- SECURITIES UNDERLYING ALL OTHER
POSITION SALARY BONUS OPTIONS(1) COMPENSATION(2)
- ----------------------------------------------- ---------- --------- ----------------------- -----------------
<S> <C> <C> <C> <C>
Andrew P. Maunder.............................. $ 158,924 $ 23,380 48,970 $ 296
President; Chief Executive Officer
Donald Hoffman................................. $ 146,339 $ 52,338 -0- $ 7,547
Senior Vice President
William J. Rahe, Jr............................ $ 131,800 $ 24,804 18,360 $ 5,880
Vice President, Engineering
Jugtar Basi.................................... $ 121,963 $ 19,275 18,360 $ 4,934
Vice President, Marketing (3)
Joseph F. Gorecki.............................. $ 106,454 $ 18,365 18,360 $ 4,346
Vice President, Program Management and
Customer Service
</TABLE>
- ------------------------
(1) All options listed in this column are options to purchase the Common Stock
of Securicor, a company traded on the London Stock Exchange. At the close of
business on April 16, 1997, the price of Securicor Common Stock as reported
on the London Stock Exchange was L2.85 per share. At the noon exchange rate
of U.S. Dollars into British Pounds Sterling reported by the Federal Reserve
Bank of New York on April 16, 1997, the price of such shares in U.S. Dollars
was $4.62 per share. The exercise price of such options is L2.45 per share
or $3.98 per share at the above described exchange rate.
45
<PAGE>
(2) Includes amounts paid by the Company in fiscal 1996 with respect to life
insurance premiums for the benefit of the Named Executives Officers and
Company contributions to the 401(k) accounts of such officers as follows:
(i) Mr. Maunder; $296 for life insurance premiums; (ii) Mr. Hoffman; $5,471
in 401(k) contributions and $2,076 for insurance premiums; (iii) Mr. Rahe;
$5,333 in 401(k) contributions and $547 in insurance premiums; (iv) Mr.
Basi; $4,934 in 401(k) contributions; and (v) Mr. Gorecki; $4,346 in 401(k)
contributions. Excludes any amounts based upon Mr. Maunder's right to sell
to Securicor (at a price based on operating results in fiscal 1996 of
certain Securicor businesses including the Company) shares of 3Net
previously held by him that he acquired prior to his service with the
Company.
(3) Mr. Basi served as the Company's Vice President, Marketing until December
1996. Mr. Basi is no longer employed by the Company. All options granted to
Mr. Basi expired upon the termination of his employment.
SECURICOR OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF
SECURICOR POTENTIAL REALIZABLE VALUE AT
SHARES PERCENT OF TOTAL ASSUMED RATES OF STOCK PRICE
UNDERLYING OPTIONS GRANTED TO APPRECIATION FOR OPTION TERM(3)
OPTIONS COMPANY EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------------------
NAME GRANTED(1) FISCAL YEAR (L/SHARE)(2) DATE 0% 5% 10%
- --------------------- --------------- --------------------- --------------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew P. Maunder.... 36,730 30% L2.45 6/27/06 -- $ 91,836 $ 232,734
12,240 10% L2.45 6/28/06 $ 3,376 $ 36,104 $ 86,314
Donald Hoffman....... -0- -- -- -- -- -- --
William J. Rahe,
Jr................. 6,120 5% L2.45 6/27/06 -- $ 15,302 $ 38,778
12,240 10% L2.45 6/28/06 $ 3,376 $ 36,104 $ 86,314
Jugtar Basi.......... 6,120 5% L2.45 (4) -- -0- -0-
12,240 10% L2.45 (4) -0- -0- -0-
Joseph F. Gorecki.... 6,120 5% L2.45 6/27/06 -- $ 15,302 $ 38,778
12,240 10% L2.45 6/28/06 $ 3,376 $ 36,104 $ 86,314
</TABLE>
- ------------------------
(1) All options granted to Named Executive Officers in fiscal 1996 were options
to purchase the Common Stock of Securicor.
(2) At the noon exchange rate of U.S. Dollars to British Pounds Sterling
reported by the Federal Reserve Bank of New York on April 16, 1997, the
exercise price of such options in U.S. Dollars was $3.98 per share.
(3) All amounts reflect the conversion of British Pounds Sterling to U.S.
Dollars at the rate of 1.6225 British Pounds Sterling to one U.S. Dollar,
the noon exchange rate reported by the Federal Reserve Bank of New York on
April 16, 1997.
(4) All options granted to Mr. Basi expired upon termination of his employment
in December 1996.
EMPLOYMENT AGREEMENTS
In 1994, the Company and Mr. Maunder entered into an agreement regarding Mr.
Maunder's employment with the Company, the principal terms of which were set
forth in a definitive employment agreement executed on February 10, 1995.
Pursuant to this agreement, the Company agreed to employ Mr. Maunder as Chief
Executive Officer subject to the right of the Company to terminate the
employment relationship immediately for cause or at any time without cause upon
12 months prior written notice. Mr. Maunder has the right to terminate the
agreement upon six months prior notice to the Company. The agreement provides
that the Company pay Mr. Maunder an annual base salary ($167,000 for the 12
months ending June 30, 1997) which is subject to annual review. Mr. Maunder is
entitled to participate in
46
<PAGE>
an incentive bonus program pursuant to which cash payments are calculated based
upon performance of the Company and upon individual performance targets and are
subject to a maximum payment of 40% of his annual salary. The agreement also
entitles Mr. Maunder to standard health and other insurance benefits and an
allowance for automobile expenses. As part of his employment agreement, Mr.
Maunder is required not to disclose any proprietary information at any time and
agreed to non-competition and non-interference covenants that expire 12 months
after the termination of his employment. Mr. Maunder's agreement also contains a
covenant restricting him from soliciting the Company's customers for a period of
six months after termination of his employment.
The Company has also entered into employment agreements with Messrs.
Hoffman, Rahe, Gorecki and Farina pursuant to which the Company has agreed to
employ each of them, subject to the Company's right to terminate the employee's
employment immediately for cause or without cause upon specified prior written
notice (between three months and one year). The agreements also are terminable
by the employee upon specified prior notice (between three and six months). Each
of the agreements specifies that the employee shall be paid an annual base
salary that is subject to review by the Company on an annual basis. Annual base
salary for the 12 months ending June 30, 1997 is $150,800 for Mr. Hoffman,
$137,800 for Mr. Rahe, $135,000 for Mr. Farina and $111,300 for Mr. Gorecki. The
agreements also entitle the employees to incentive compensation, standard health
and other insurance benefits and an allowance for automobile expenses. As part
of the agreement, each of the officers agreed to non-disclosure,
non-interference and non-competition covenants, which in the case of Messrs.
Rahe, Farina and Gorecki expire 12 months after termination of employment and in
the case of Mr. Hoffman six months after termination. Each agreement also
contains a covenant restricting the employee from soliciting the Company's
customers for a period of six months after the termination of employment. In
June 1997, the Company and Mr. Hoffman agreed that either the Company or Mr.
Hoffman may terminate Mr. Hoffman's employment upon three months prior notice to
the other.
1997 STOCK INCENTIVE PLAN
Under the Company's 1997 Stock Incentive Plan (the "Plan"), a variety of
awards, including stock options, stock appreciation rights and restricted and
unrestricted stock grants may be made to the Company's employees, officers,
consultants and advisors who are expected to contribute to the Company's future
growth and success. The Company has reserved 450,000 shares of Common Stock for
issuance under the Plan. The Compensation Committee will administer the Plan and
determine the price and other terms upon which awards shall be made. Stock
options may be granted either in the form of incentive stock options or
non-qualified stock options. The option exercise price of incentive stock
options may not be less than the fair market value of the Common Stock on the
date of the grant. While the Company currently anticipates that most grants
under this Plan will consist of stock options, the Company may grant stock
appreciation rights, which represent rights to receive any excess in value of
shares of Common Stock over the exercise price; restricted stock awards, which
entitle recipients to acquire shares of Common Stock, subject to the right of
the Company to repurchase all or a part of such shares at their purchase price
in the event that the conditions specified in the award are not satisfied; or
unrestricted stock awards, which represent grants of shares to participants free
of any restrictions under the Plan. Options or other awards that are granted
under the Plan but expire unexercised are available for future grants. Under the
terms of the Plan, the Company may not grant options to purchase in excess of
150,000 shares of Common Stock to any one grantee during any fiscal year.
Options to purchase 321,366 shares of Common Stock have been granted under the
Plan to the employees, officers and directors of the Company at an exercise
price equal to the initial public offering price per share. One third of these
options will become exercisable 90 days after completion of the Offering and the
remaining two-thirds will become exercisable in equal installments on the first
and second anniversaries of the date of grant, respectively. No other options to
purchase Common Stock have been granted to date.
EMPLOYEE STOCK PURCHASE PLAN
The Company is considering the adoption of an Employee Stock Purchase Plan
(the "Stock Purchase Plan") pursuant to which the Company's employees will be
permitted to purchase approximately 300,000 shares of Common Stock at a 15%
discount to its then current market price. The exact terms of the Stock Purchase
Plan are to be determined by the Board of Directors.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock as of April 15, 1997 as adjusted to reflect the sale of
shares offered pursuant to this Prospectus, (i) by each of the Company's Named
Executive Officers and directors; (ii) all of the Company's executive officers
and directors as a group; and (iii) each person known to the Company to own more
than five percent of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PRIOR TO
THE OFFERING(2) PERCENT BENEFICIALLY
------------------------------ OWNED AFTER
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT THE OFFERING(2)
- ------------------------------------------------------------------ ----------------- ----------- ---------------------
<S> <C> <C> <C>
Securicor Communications(1)....................................... 3,476,900 100% 57.2%
Edmund A. Hough (1)............................................... -0- -- --
Michael G. Wilkinson (1).......................................... -0- -- --
Andrew P. Maunder................................................. -0- -- --
Donald Hoffman.................................................... -0- -- --
William J. Rahe, Jr............................................... -0- -- --
Joseph F. Gorecki................................................. -0- -- --
Robert B. Kelly................................................... -0- -- --
Sammy W. Pearson.................................................. -0- -- --
Trevor Sokell..................................................... -0- -- --
All directors and executive officers as a group (10 persons)...... -0- --% --%
</TABLE>
- ------------------------
(1) The address of Securicor Communications is Sutton Park House, 15 Carshalton
Road, Sutton Surrey, England. Dr. Hough and Mr. Wilkinson may be deemed to
own beneficially the shares owned by Securicor Communications by virtue of
their role as directors of Securicor Communications. Each of Dr. Hough and
Mr. Wilkinson disclaim beneficial ownership of these shares. Securicor
Communications is an indirect wholly-owned subsidiary of Securicor.
(2) Excludes outstanding options to purchase an aggregate of 321,366 shares of
Common Stock granted to employees, officers and directors pursuant to the
1997 Stock Incentive Plan. One third of these options will become
exercisable 90 days after completion of the Offering and the remaining
two-thirds will become exercisable in two equal installments on the first
and second anniversaries of the date of grant, respectively. Included in
these grants are options to purchase the following number of shares granted
to: Mr. Maunder--53,333 shares, Mr. Hoffman--12,000 shares, Mr. Rahe--27,560
shares, Mr. Gorecki--22,260 shares, Mr. Farina--27,000 shares, Mr.
Kadish--21,000 shares, Messrs. Pearson and Sokell--5,000 shares each, and
all directors and executive officers as a group--173,153 shares. See
"Management--1997 Stock Incentive Plan."
CERTAIN TRANSACTIONS
Prior to the completion of the Offering, the Company has operated as an
indirect wholly-owned subsidiary of Securicor and has been a member of the
Telecoms Sector of the Communications Division of Securicor. Accordingly,
Securicor has assessed the Company intercompany charges related to group and
divisional costs and sales and marketing activities. These charges are based on
Securicor's estimate of its total relevant costs for the applicable fiscal year,
allocated pro rata based on estimated revenues of each applicable business unit.
The Company has paid to Securicor total charges of $386,000 and $403,000 in
fiscal 1995 and fiscal 1996, respectively. No charges were incurred during the
period from July 1, 1994 to September 30, 1994. Until the Offering is completed,
the Company will pay to Securicor charges at an annualized rate of $540,000
pro-rated to the date of completion of the Offering. Securicor has agreed that
the Company will no longer be liable for any group or divisional charges after
the completion of the
48
<PAGE>
Offering. The Company and Securicor have entered into a one-year agreement
effective as of the completion of the Offering pursuant to which Securicor will
continue to provide certain international marketing services to the Company in
consideration of the payment of $160,000 per year. This payment is an estimate
of the total cost to Securicor of the personnel whose services are to be
provided, pro rated based upon the estimated portion of such personnel's total
time to be utilized by the Company.
From time to time, Securicor has advanced funds to the Company to meet the
Company's needs for working capital and for other corporate purposes. Such
advances are treated as indebtedness of the Company to Securicor, a portion of
which bears interest that has accrued at varying rates ranging from a low of
6.25% per annum to a high of 7.75% per annum. This interest rate was 7.0% per
annum at March 31, 1997. The amount of such indebtedness was $21.5 million at
March 31, 1997, $9.0 million of which is interest bearing. The highest principal
balance of such amount was $12.4 million during the period from July 1, 1994 to
September 30, 1994, $17.0 million during fiscal 1995 and $22.6 million during
fiscal 1996. With respect to such indebtedness, the Company incurred interest
expense in the amount of $9,000, $141,000 and $578,000 in the period from July
1, 1994 to September 30, 1994, fiscal 1995 and fiscal 1996, respectively.
Advances of $13.3 million, $10.5 million, $12.7 million and $2.1 million were
received in the period from July 1, 1994 to September 30, 1994, fiscal 1995,
fiscal 1996 and the six months ended March 31, 1997, respectively. Principal
repayments of $922,000, $4.6 million, $7.9 million and $3.9 million were made in
the period from July 1, 1994 to September 30, 1994, fiscal 1995, fiscal 1996,
and the six months ended March 31, 1997, respectively. At the completion of the
Offering, all outstanding principal and interest with respect to this
indebtedness will be repaid to Securicor. See "Use of Proceeds."
During fiscal 1995 and fiscal 1996, the Company was engaged by Securicor
Radiocoms, Ltd., a manufacturer of radio telecommunications devices affiliated
with Securicor ("Radiocoms"), to build base stations to be included in radio
communications equipment sold by Radiocoms to its customers. In January 1995,
Radiocoms purchased 125 base stations from the Company, for which the Company
billed Radiocoms for its costs and a specified profit percentage. In July 1995,
Radiocoms purchased an additional 230 base stations and paid the Company a fixed
price per unit and reimbursed it for certain of its costs. The Company earned
revenues of $1.4 million and $2.3 million from Radiocoms in fiscal 1995 and
fiscal 1996, respectively. The Company completed all work related to the
Radiocoms purchases by April 1996. The Company has not performed any similar
project for any other customer, but believes that the project was performed on
substantially arm's-length terms.
The Company purchased $324,000 and $386,000 of products from 3Net, an
affiliate of Securicor, during fiscal 1996 and the six months ended March 31,
1997, respectively. In May 1997, the Company transferred all of the stock of
3Net Delaware to a wholly-owned subsidiary of Securicor for its nominal book
value. Included in the net assets transferred was an obligation to Securicor in
the amount of approximately $1.1 million. 3Net Delaware utilizes certain office
space and systems of the Company for which it has been charged approximately
$7,000 per month since its formation. The Company has entered into an agreement
with 3Net Delaware pursuant to which the Company continues to make available
such space and systems in consideration of the payment of $4,500 per month for
administrative services and $650 per month for each 3Net Delaware employee
located on the Company's premises. These amounts are based upon an estimate of
the Company's cost of the space and personnel utilized by 3Net Delaware. This
agreement became effective as of May 23, 1997 and is terminable on September 30,
1997, subject to annual extensions if not terminated by either party.
In addition, the Company has entered into the Registration Rights Agreement
pursuant to which Securicor has the right, subject to customary limitations, to:
(i) demand registration of the resale of its Common Stock once during each
twelve-month period at the expense of Securicor for so long as Securicor owns at
least 10% of the outstanding Common Stock; and (ii) include its Common Stock in
registration statements filed by the Company.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the filing of the Certificate of Incorporation the authorized capital
stock of the Company will consist of 25,000,000 shares of Common Stock, $.01 par
value, and 5,000,000 shares of preferred stock, $.01 par value. No shares of
preferred stock are currently outstanding.
The holders of Common Stock are entitled to receive dividends, when and as
declared by the Board of Directors, out of funds legally available therefor and
to receive pro rata the assets of the Company legally available for distribution
upon liquidation after payment to holders of preferred stock having a
liquidation preference over the Common Stock. In addition, holders of Common
Stock are entitled to one vote per share on all matters voted on by stockholders
generally, including the election of directors, and do not have cumulative
voting rights. There are no preemptive, conversion or redemption rights
applicable to the shares of the Common Stock. The currently outstanding shares
of Common Stock are, and the shares of Common Stock offered by the Company
hereby, upon issuance by the Company against receipt of the purchase price
therefor, will be, fully paid and non-assessable. The By-laws provide that any
action requiring stockholder approval, other than the election of directors,
shall require the affirmative vote of two-thirds of the outstanding shares of
Common Stock.
The Board of Directors is empowered by the Certificate of Incorporation to
designate and issue from time to time one or more classes or series of preferred
stock without any action of the stockholders. The Board of Directors may fix and
determine the designations, preferences and relative, participating, optional
and other special rights, or the qualifications, limitations or restrictions of
each class or series so authorized. The issuance of, or the ability to issue,
the preferred stock could adversely affect the voting power and other rights of
the holders of the Common Stock or could have the effect of decreasing the
market price of the Common Stock or of discouraging or making difficult any
attempt by a person or group to obtain control of the Company, including any
attempt involving a bid for the Common Stock at a premium over the then market
price. The Company does not presently contemplate the issuance of any preferred
stock.
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prohibits a Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the time that such person
became an interested stockholder, unless the business combination is approved in
a prescribed manner or unless upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the corporation's voting stock outstanding at
the time the transaction commenced (excluding shares held by certain designated
stockholders). A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within the previous three
years did own, 15% or more of the corporation's voting stock.
The Certificate of Incorporation and By-laws contain certain provisions
relating to the limitation of liability and indemnification of directors and
officers. The Certificate of Incorporation provides that directors of the
Company may not be held personally liable to the Company or its stockholders for
monetary damages for a breach of fiduciary duty, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, relating to prohibited dividends,
distributions and repurchases or redemptions of stock, or (iv) for any
transaction from which the director derives an improper benefit. However, such
limitation does not limit the availability of non-monetary relief in any action
or proceeding against a director. In addition, the By-laws provide that the
Company shall indemnify its directors and officers to the fullest extent
authorized by Delaware law.
50
<PAGE>
The By-laws provide that stockholders seeking to nominate candidates for
election as directors at an annual or a special meeting of stockholders must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive offices
of the Company (i) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, not less than 120 days prior to the
anniversary of the date that the Company's proxy statement was released to
stockholders in connection with the immediately preceding annual meeting, and
(ii) in the case of an annual meeting that is called for a date that is not
within 30 days before or after the anniversary date of the immediately preceding
annual meeting, or in the case of a special meeting of stockholders called for
the purpose of electing directors, not later than the close of business on the
tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made, whichever
occurs first. The By-laws also specify certain requirements for a stockholder's
notice to be in proper written form.
The registrar and transfer agent for the Common Stock is StockTrans, Inc.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock.
Sales of substantial amounts of shares of the Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock, making it more difficult for the Company to sell equity securities in the
future at a time and price which it deems appropriate.
Upon the completion of the Offering, assuming no exercise of the
overallotment options, the Company will have outstanding 6,076,900 shares of
Common Stock. Of these shares, the 2,600,000 shares of Common Stock to be sold
in the Offering will be freely tradeable without restriction or further
registration under the Securities Act. The remaining 3,476,900 shares of Common
Stock outstanding as of the date of this Prospectus, all of which are held by
Securicor, are "restricted securities" as defined by Rule 144 and will be
eligible for sale in accordance with the provisions of Rule 144 beginning 180
days after the date of this Prospectus, or earlier to the extent that Lehman
Brothers Inc. consents to such sale as described below. In addition, the Company
has entered into the Registration Rights Agreement pursuant to which Securicor
has the right, subject to customary limitations, to: (i) demand registration of
the resale of its Common Stock once during each twelve month period at
Securicor's expense for so long as Securicor owns at least 10% of the
outstanding Common Stock; and (ii) include its Common Stock in registration
statements filed by the Company.
In general, under Rule 144 as amended effective April 29, 1997, a person who
has beneficially owned shares for at least one year, including an "affiliate,"
as that term is defined in the Securities Act, is entitled to sell within any
three-month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (approximately 60,769
shares after the completion of the Offering) or the average weekly trading
volume during the four calendar weeks preceding filing of notice of such sale,
subject to certain requirements concerning availability of public information,
manner and notice of sale.
In addition, affiliates must comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirements, in order to
sell shares of Common Stock which are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two year holding period may resell such shares without
compliance with the foregoing requirements.
Upon the completion of the Offering, there will be 321,366 shares of Common
Stock issuable upon exercise of options granted under the 1997 Stock Incentive
Plan, one-third of which will become exercisable 90 days after completion of the
Offering and the remainder of which will become exercisable in two equal annual
installments on the first and second anniversaries of the date of grant,
respectively. The Company intends to file a Form S-8 registration statement
covering these shares within 90 days from the date of this Prospectus. The
shares registered under such registration statement will be available for resale
in the open market upon the exercise of vested options, subject to Rule 144
volume limitations applicable to affiliates.
The Company and Securicor have agreed that, for a period of 180 days after
the date of this Prospectus, they will not, without the prior written consent of
Lehman Brothers Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock except, in the case of the Company,
in certain limited circumstances.
52
<PAGE>
UNDERWRITING
Under the terms of, and subject to the conditions contained in, the U.S.
Underwriting Agreement, the form of which is filed as an Exhibit to the
Registration Statement (the "Registration Statement") of which this Prospectus
forms a part, the underwriters named below (the "U.S. Underwriters"), for whom
Lehman Brothers Inc. and J.P. Morgan Securities Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the U.S. Underwriting Agreement, to purchase from the
Company, and the Company has agreed to sell to each U.S. Underwriter, the
aggregate number of shares of Common Stock set forth opposite the name of each
such U.S. Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
U.S. UNDERWRITERS COMMON STOCK
- ------------------------------------------------------------------------------ --------------
<S> <C>
Lehman Brothers Inc. .........................................................
J.P. Morgan Securities Inc. ..................................................
--------------
Total...................................................................
</TABLE>
Under the terms of, and subject to the conditions contained in, the
International Underwriting Agreement, the form of which is filed as an Exhibit
to the Registration Statement, the managers named below of the concurrent
offering of the shares of Common Stock outside the U.S. and Canada (the
"International Managers"), for whom Lehman Brothers International (Europe) and
J.P. Morgan Securities Ltd. are acting as lead managers (the "Lead Managers"),
have severally agreed, subject to the terms and conditions of the International
Underwriting Agreement, to purchase from the Company, and the Company has agreed
to sell to each International Manager, the aggregate number of shares of Common
Stock set forth opposite the name of each International Manager below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
INTERNATIONAL MANAGERS COMMON STOCK
- ------------------------------------------------------------------------------ --------------
<S> <C>
Lehman Brothers International (Europe)........................................
J.P. Morgan Securities Ltd. ..................................................
--------------
Total...................................................................
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting Agreement
(collectively, the "Underwriting Agreements") provide that the obligations of
the U.S. Underwriters and the International Managers to purchase shares of
Common Stock are subject to certain conditions, and that if any of the foregoing
shares of Common Stock are purchased by the U.S. Underwriters pursuant to the
U.S. Underwriting Agreement or by the International Managers pursuant to the
International Underwriting Agreement, then all the shares of Common Stock agreed
to be purchased by the U.S. Underwriters and the International Managers, as the
case may be, pursuant to their respective Underwriting Agreements, must be so
purchased. The offering price and underwriting discounts and commissions per
share for the U.S. Offering and the International Offering are identical. The
closing of the U.S. Offering is a condition to the closing of the International
Offering and the closing of the International Offering is a condition to the
closing of the U.S. Offering.
The Company has been advised by the Representatives and the Lead Managers
that the U.S. Underwriters and the International Managers propose to offer the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page of this Prospectus, and to certain selected dealers (who
may include the U.S. Underwriters and the International Managers) at such public
offering price less a selling concession not in excess of $ per share.
The selected dealers may reallow a concession not in excess of $ per
share to certain brokers and dealers. After the Offering, the public offering
price, the concession to selected dealers and the reallowance may be changed by
the U.S. Underwriters and the International Managers.
53
<PAGE>
The Company and Security Services plc, a wholly-owned subsidary of
Securicor, have agreed to indemnify, under certain circumstances, the U.S.
Underwriters and the International Managers against certain liabilities,
including liabilities under the Securities Act, and to contribute, under certain
circumstances, to payments that the U.S. Underwriters and the International
Managers may be required to make in respect thereof.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an aggregate of and additional
shares of Common Stock, respectively, exercisable solely to cover
over-allotments, at the public offering price less the underwriting discounts
and commissions shown on the cover page of this Prospectus. Such options may be
exercised at any time until 30 days after the date of the Underwriting
Agreements. To the extent that either option is exercised, each U.S. Underwriter
or International Manager, as the case may be, will be committed, subject to
certain conditions, to purchase a number of additional shares of Common Stock
proportionate to such U.S. Underwriter's or International Manager's initial
commitment as indicated in the preceding tables.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated between the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the shares of Common Stock, in
addition to prevailing market conditions, will be the Company's historical
performance and capital structure, estimates of business potential and earnings
prospects of the Company, an overall assessment of the Company, an assessment of
the Company's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
The U.S. Underwriters and the International Managers have entered into an
Agreement Between U.S. Underwriters and International Managers pursuant to which
each U.S. Underwriter has agreed that, as part of the distribution of the shares
of Common Stock offered in the U.S. Offering, (i) it is not purchasing any such
shares for the account of anyone other than a U.S. Person (as defined below),
and (ii) it has not offered or sold, will not offer, sell, resell or deliver,
directly or indirectly, any such shares or distribute any prospectus relating to
the U.S. Offering to anyone other than a U.S. Person. In addition, pursuant to
such Agreement, each International Manager has agreed that, as part of the
distribution of the shares of Common Stock offered in the International
Offering, (a) it is not purchasing any such shares for the account of a U.S.
Person, and (b) it has not offered or sold, and will not offer, sell, resell or
deliver, directly or indirectly, any of such shares or distribute any prospectus
relating to the International Offering to any U.S. Person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Underwriting Agreements and the
Agreement Between U.S. Underwriters and International Managers, including (i)
certain purchases and sales between U.S. Underwriters and the International
Managers, (ii) certain offers, sales, resales, deliveries or distributions to or
through investment advisors or other persons exercising investment discretion,
(iii) purchases, offers or sales by a U.S. Underwriter who is also acting as an
International Manager or by an International Manager who is also acting as a
U.S. Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers. As used herein, the term "U.S. Person"
means any resident or national of the United States or Canada and its provinces,
any corporation, partnership or other entity created or organized in or under
the laws of the United States or Canada and its provinces, or any estate or
trust the income of which is subject to United States or Canadian federal income
taxation regardless of the source, and the term "United States" means the United
States of America (including the District of Columbia) and its territories, its
possessions and other areas subject to its jurisdiction.
Pursuant to the Agreement Between the U.S. Underwriters and the
International Managers, sales may be made between the U.S. Underwriters and the
International Managers of such a number of shares of Common Stock as may be
mutually agreed. The price of any shares so sold shall be the public offering
price as then in effect for the shares of Common Stock being sold by the U.S.
Underwriters and the International Managers, less an amount equal to the selling
concession allocable to such shares of
54
<PAGE>
Common Stock, unless otherwise determined by mutual agreement. To the extent
that there are sales between the U.S. Underwriters and the International
Managers pursuant to the Agreement Between the U.S. Underwriters and the
International Managers, the number of shares of Common Stock available for sale
by the U.S. Underwriters or by the International Managers may be more or less
than the amount specified on the cover page of the Prospectus.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the U.S.
Underwriters and certain selling group members to bid for and purchase shares of
Common Stock. As an exception to these rules, the Representatives are permitted
to engage in certain transactions that stabilize the price of the Common Stock.
Such transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
If the U.S. Underwriters create a short position in the Common Stock in
connection with the Offering (I.E., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives also may elect to reduce any short position by exercising
all or part of the over-allotment options described herein.
The Representatives also may impose a penalty bid on certain U.S.
Underwriters and selling group members. This means that, if the Representatives
purchase shares of Common Stock in the open market to reduce the U.S.
Underwriters' short position or to stabilize the price of the Common Stock, they
may reclaim the amount of the selling concession from the U.S. Underwriters and
selling group members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.
Neither the Company nor any of the U.S. Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the U.S. Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Each International Manager has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the date of issue of the
shares of Common Stock, will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the shares of Common Stock in, from or
otherwise involving the United Kingdom, and (iii) it has only issued or passed
on, and will only issue or pass on to any person in the United Kingdom any
document received by it in connection with the issue of the shares of Common
Stock if that person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995.
The Common Stock has been approved for quotation on Nasdaq under the symbol
"AXIM."
The Company and Securicor have agreed that they will not, subject to certain
limited exceptions, for a period of 180 days from the date of this Prospectus,
directly or indirectly, offer, sell or otherwise dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for any
such shares of Common Stock, without the prior written consent of Lehman
Brothers Inc.
55
<PAGE>
At the request of the Company, the Underwriters have reserved approximately
5% of the shares of Common Stock offered hereby for sale at the initial public
offering price to employees of the Company and other persons associated with the
Company.
Any offer of the shares of Common Stock in Canada will be made only pursuant
to an exemption from the prospectus filing requirement and an exemption from the
dealer registration requirement (where such an exemption is not available,
offers shall be made only by a registered dealer) in the relevant Canadian
jurisdiction where such offer is made.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover hereof.
The U.S. Underwriters and the International Managers have informed the
Company that they do not intend to sell to, and therefore will not confirm the
sales of shares of Common Stock offered hereby to, any accounts over which they
exercise discretionary authority.
LEGAL MATTERS
Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pennsylvania, has
rendered an opinion that the shares of Common Stock offered hereby will be
legally issued, fully paid and non-assessable. Certain legal matters relating to
the Offering will be passed upon for the Underwriters by Chadbourne & Parke LLP,
New York, New York.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated on their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
shares of Common Stock, reference is hereby made to the Registration Statement
and the exhibits and schedules filed as a part thereof. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified by such reference. The Registration
Statement, including exhibits and schedules thereto, may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may also be obtained at prescribed rates from the
Public Reference Section of the Commission, Washington, D.C. 20549. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") systems
are publicly available through the Commission's site on the Internet's World
Wide Web, located at http:// www.sec.gov. The Registration Statement, including
all exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
56
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AXIOM INC. AND SUBSIDIARIES:
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Stockholder's Deficit......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
FINANCIAL STATEMENTS OF PREDECESSOR BUSINESS:
Report of Independent Public Accountants................................................................. F-22
Statement of Revenues and Certain Expenses............................................................... F-23
Statement of Certain Cash Flows.......................................................................... F-24
Notes to Statements of Revenues and Certain Expenses and Certain Cash Flows.............................. F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Axiom Inc. (formerly Securicor Communications Inc.):
We have audited the accompanying consolidated balance sheets of Axiom Inc.
and subsidiaries (formerly Securicor Communications Inc.) as of September 30,
1995 and 1996, and the related consolidated statements of operations,
stockholder's deficit and cash flows for the period from July 1, 1994 to
September 30, 1994 and for each of the two years in the period ended September
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Axiom Inc. and subsidiaries
(formerly Securicor Communications Inc.) as of September 30, 1995 and 1996, and
the results of their operations and their cash flows for the period from July 1,
1994 to September 30, 1994 and for each of the two years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
July 3, 1997
F-2
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................................... $ 1,449 $ 3,326 $ 1,279
Accounts receivable.......................................................................... 7,394 15,740 8,158
Inventories.................................................................................. 4,244 3,167 4,672
Deferred tax assets.......................................................................... 543 458 495
Income tax receivable........................................................................ -- -- 2,592
Other........................................................................................ 442 354 578
--------- --------- -----------
Total current assets..................................................................... 14,072 23,045 17,774
--------- --------- -----------
PROPERTY AND EQUIPMENT:
Computer hardware and software............................................................... 1,581 2,417 2,872
Production and test equipment................................................................ 980 1,329 1,642
Furniture, fixtures and leasehold improvements............................................... 501 531 532
--------- --------- -----------
3,062 4,277 5,046
Less-Accumulated depreciation and amortization............................................... (670) (1,541) (2,105)
--------- --------- -----------
Net property and equipment............................................................... 2,392 2,736 2,941
DEFERRED TAX ASSETS............................................................................ 2,825 2,959 2,879
OTHER ASSETS................................................................................... 1,407 1,207 826
INTANGIBLE ASSETS, net......................................................................... 1,153 389 187
--------- --------- -----------
$ 21,849 $ 30,336 $ 24,607
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt............................................................ $ -- $ 185 $ 185
Obligations to parent and affiliates......................................................... 18,461 23,291 21,480
Accounts payable............................................................................. 2,332 2,293 2,231
Accrued compensation and related benefits.................................................... 1,179 1,206 975
Accrued agent commissions.................................................................... 1,116 806 427
Other accrued expenses....................................................................... 769 1,268 712
Accrued tax payable.......................................................................... 297 1,348 --
Deferred tax liabilities..................................................................... 24 9 54
Deferred revenues............................................................................ 1,684 1,232 2,414
--------- --------- -----------
Total current liabilities................................................................ 25,862 31,638 28,478
--------- --------- -----------
LONG-TERM LIABILITIES:
Deferred tax liabilities..................................................................... 27 90 130
Long-term debt............................................................................... -- 147 --
--------- --------- -----------
Total long-term liabilities.............................................................. 27 237 130
--------- --------- -----------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDER'S DEFICIT:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized,...............................
no shares issued and outstanding........................................................... -- -- --
Common Stock, $0.01 par value, 25,000,000 shares authorized,
3,476,900 shares issued and outstanding.................................................... -- -- --
Accumulated deficit.......................................................................... (4,040) (1,539) (4,001)
--------- --------- -----------
Total stockholder's deficit.............................................................. (4,040) (1,539) (4,001)
--------- --------- -----------
$ 21,849 $ 30,336 $ 24,607
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994 YEAR ENDED SEPTEMBER SIX MONTHS ENDED
TO 30, MARCH 31,
SEPTEMBER 30, -------------------- --------------------
1994 1995 1996 1996 1997
------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Unrelated third parties:
Equipment................................................ $ 4,242 $ 18,000 $ 23,358 $ 5,311 $ 8,847
Services................................................. 1,364 5,766 7,739 3,053 3,203
------------- --------- --------- --------- ---------
5,606 23,766 31,097 8,364 12,050
------------- --------- --------- --------- ---------
Related parties............................................ -- 1,802 2,867 2,416 --
------------- --------- --------- --------- ---------
Total revenues......................................... 5,606 25,568 33,964 10,780 12,050
------------- --------- --------- --------- ---------
COST OF REVENUES:
Unrelated third parties:
Equipment................................................ 2,271 9,110 11,639 3,825 5,054
Services................................................. 1,086 3,093 4,580 2,292 2,780
------------- --------- --------- --------- ---------
3,357 12,203 16,219 6,117 7,834
------------- --------- --------- --------- ---------
Related parties............................................ -- 1,274 1,946 1,635 --
------------- --------- --------- --------- ---------
Total cost of revenues................................. 3,357 13,477 18,165 7,752 7,834
------------- --------- --------- --------- ---------
Gross profit........................................... 2,249 12,091 15,799 3,028 4,216
------------- --------- --------- --------- ---------
OPERATING EXPENSES:
Research, development and engineering...................... 1,348 5,948 7,003 3,209 3,790
Selling, general and administrative........................ 1,072 5,206 6,308 2,970 4,230
Parent charges............................................. -- 386 403 213 193
Charge for purchased research and development.............. 6,700 -- -- -- --
------------- --------- --------- --------- ---------
Total operating expenses............................... 9,120 11,540 13,714 6,392 8,213
------------- --------- --------- --------- ---------
Operating income (loss)................................ (6,871) 551 2,085 (3,364) (3,997)
INTEREST EXPENSE, net (including related party interest)..... 9 112 514 227 279
OTHER INCOME................................................. 66 148 430 413 54
EQUITY IN LOSS OF INVESTEE................................... -- 494 18 18 --
GAIN ON SALE OF INVESTMENT................................... -- -- 2,061 -- --
------------- --------- --------- --------- ---------
Income (loss) before income taxes...................... (6,814) 93 4,044 (3,196) (4,222)
INCOME TAX (EXPENSE) BENEFIT................................. 2,716 (35) (1,543) 1,220 1,760
------------- --------- --------- --------- ---------
NET INCOME (LOSS)............................................ $ (4,098) $ 58 $ 2,501 $ (1,976) $ (2,462)
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
HISTORICAL NET INCOME (LOSS) PER COMMON SHARE................ $ (1.18) $ 0.02 $ 0.72 $ (0.57) $ (0.71)
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
SHARES USED IN COMPUTING HISTORICAL NET INCOME (LOSS) PER
COMMON SHARE............................................... 3,477 3,477 3,477 3,477 3,477
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
SUPPLEMENTAL PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
(unaudited)................................................ $ 0.55 $ (0.44)
--------- ---------
--------- ---------
SHARES USED IN COMPUTING SUPPLEMENTAL PRO FORMA NET INCOME
(LOSS) PER COMMON SHARE (unaudited)........................ 5,180 5,180
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
----------------- ------------ ---------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE, JULY 1, 1994.................................................... $ -- $ -- $ --
Initial capitalization................................................. -- -- --
Net loss............................................................... -- (4,098) (4,098)
--- ------------ ---------
BALANCE, SEPTEMBER 30, 1994.............................................. -- (4,098) (4,098)
Net income............................................................. -- 58 58
--- ------------ ---------
BALANCE, SEPTEMBER 30, 1995.............................................. -- (4,040) (4,040)
Net income............................................................. -- 2,501 2,501
--- ------------ ---------
BALANCE, SEPTEMBER 30, 1996.............................................. -- (1,539) (1,539)
Net loss (unaudited)................................................... -- (2,462) (2,462)
--- ------------ ---------
BALANCE, MARCH 31, 1997 (unaudited)...................................... $ -- $ (4,001) $ (4,001)
--- ------------ ---------
--- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX
PERIOD FROM MONTHS
JULY 1, 1994 YEAR ENDED SEPTEMBER ENDED
TO 30, MARCH 31,
SEPTEMBER 30, -------------------- ---------
1994 1995 1996 1996
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ (4,098) $ 58 $ 2,501 $ (1,976)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities-
Depreciation and amortization............................................ 307 1,318 1,885 759
Equity in loss of investee............................................... -- 494 18 18
Gain on sale of investment............................................... -- -- (2,061) --
Charge for purchased research and development............................ 6,700 -- -- --
Changes in assets and liabilities, net-
Decrease (increase) in-
Accounts receivable.................................................. (1,131) (2,131) (8,346) 1,882
Inventories.......................................................... 583 (2,392) 1,077 (215)
Other current assets................................................. (428) 419 162 (445)
Other assets......................................................... (24) (3) (68) (71)
Deferred taxes....................................................... (2,739) (259) (1) --
Increase (decrease) in-
Accounts payable..................................................... 683 1,102 (39) (1,092)
Accrued compensation and related benefits............................ (28) 498 27 (44)
Accrued agent commissions............................................ 39 662 (310) (244)
Accrued tax payable.................................................. 23 177 1,148 (1,726)
Deferred revenues.................................................... (1,116) (691) (452) 1,282
Other accrued expenses............................................... 77 (1,161) 402 (351)
------------- --------- --------- ---------
Net cash provided by (used in) operating activities................ (1,152) (1,909) (4,057) (2,223)
------------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business.................................................. (10,850) -- -- --
Purchases of property and equipment...................................... (135) (877) (818) (208)
Sale (purchase) of investment............................................ -- (512) 2,061 --
Purchase of product development costs.................................... -- (1,336) -- --
------------- --------- --------- ---------
Net cash provided by (used in) investing activities................ (10,985) (2,725) 1,243 (208)
------------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt............................................... -- -- (139) (98)
Advances on obligations to parent and affiliates......................... 13,284 10,505 12,743 6,976
Repayments on obligations to parent and affiliates....................... (922) (4,647) (7,913) (5,013)
------------- --------- --------- ---------
Net cash provided by (used in) financing activities................ 12,362 5,858 4,691 1,865
------------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... 225 1,224 1,877 (566)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............................... -- 225 1,449 1,449
------------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR..................................... $ 225 $ 1,449 $ 3,326 $ 883
------------- --------- --------- ---------
------------- --------- --------- ---------
<CAPTION>
1997
---------
<S> <C>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ (2,462)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities-
Depreciation and amortization............................................ 1,107
Equity in loss of investee............................................... --
Gain on sale of investment............................................... --
Charge for purchased research and development............................ --
Changes in assets and liabilities, net-
Decrease (increase) in-
Accounts receivable.................................................. 7,582
Inventories.......................................................... (1,505)
Other current assets................................................. (224)
Other assets......................................................... 40
Deferred taxes....................................................... 128
Increase (decrease) in-
Accounts payable..................................................... (62)
Accrued compensation and related benefits............................ (231)
Accrued agent commissions............................................ (379)
Accrued tax payable.................................................. (3,940)
Deferred revenues.................................................... 1,182
Other accrued expenses............................................... (556)
---------
Net cash provided by (used in) operating activities................ 680
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business.................................................. --
Purchases of property and equipment...................................... (769)
Sale (purchase) of investment............................................ --
Purchase of product development costs.................................... --
---------
Net cash provided by (used in) investing activities................ (769)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt............................................... (147)
Advances on obligations to parent and affiliates......................... 2,056
Repayments on obligations to parent and affiliates....................... (3,867)
---------
Net cash provided by (used in) financing activities................ (1,958)
---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (2,047)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............................... 3,326
---------
CASH AND CASH EQUIVALENTS, END OF YEAR..................................... $ 1,279
---------
---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. BACKGROUND:
THE COMPANY
Axiom Inc. (the "Company"), a Delaware corporation, changed its name from
Securicor Communications Inc. Through May 23, 1997, the Company's business was
conducted through its wholly-owned subsidary, Securicor Telesciences Inc.
("STI"). On that date, STI merged into the Company. The Company is a
wholly-owned subsidiary of Securicor Communications Limited ("SCL"), an entity
organized under the laws of the United Kingdom and a wholly-owned subsidiary of
Securicor plc ("Securicor"), a company organized under the laws of the United
Kingdom. As the merger represented a transaction between entities under common
control, the net assets of STI were transferred at net book value. SCL's capital
contribution was $100. As the financial statements are presented in "thousands,"
no amounts are presented in Common Stock and additional paid-in capital. SCL has
provided the financing requirements for the Company through advances. All of the
Company's funding requirements since its inception have been provided by SCL.
(see Note 8).
Effective July 1, 1994, the Company purchased the net assets of the wireline
division of TeleSciences, Inc. TeleSciences, Inc. was an unrelated third party.
The Company had no operating activities prior to this acquisition. The
acquisition was accounted for as a purchase transaction. The total purchase
price of $12,202,000, including $241,000 of transaction costs, was allocated to
the assets acquired and liabilities assumed based on their respective fair
values. As discussed further in Note 2, the Company recorded $6,700,000 of the
purchase price as a charge to the statement of operations on the acquisition
date as it was related to the fair value of incomplete research and development
projects. The excess of the purchase price over the fair value of the net assets
acquired was $2,108,000. Of such amount, $1,800,000 was allocated to developed
technology and $308,000 was allocated to goodwill. Developed technology and
goodwill are being amortized over 2 1/2 and 7 years, respectively, on a
straight-line basis (see Note 6).
The following table displays the noncash assets and liabilities that were
acquired as a result of the acquisition:
<TABLE>
<S> <C>
Noncash assets (liabilities):
Accounts receivable........................................... $4,132,000
Inventories................................................... 2,435,000
Other current assets.......................................... 433,000
Property and equipment........................................ 2,050,000
Other assets.................................................. 26,000
Intangible assets............................................. 2,108,000
Deferred tax asset............................................ 319,000
Charge for purchased research and development................. 6,700,000
Accounts payable.............................................. (547,000)
Other accrued expenses and deferred revenues.................. (5,454,000)
----------
Purchase price paid......................................... $12,202,000
----------
----------
</TABLE>
F-7
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
1. BACKGROUND: (CONTINUED)
INITIAL PUBLIC OFFERING AND STOCK SPLIT
In May 1997, the Company filed a registration statement with the Securities
and Exchange Commission to register 2,600,000 shares of Common Stock being
offered for sale in its initial public offering. There can be no assurance that
this initial public offering will be completed. The Company plans to use a
portion of the net proceeds of this initial public offering to repay certain of
its obligations to parent and affiliates (see Note 8).
On June 27, 1997, the Company amended its Certificate of Incorporation to
authorize 5,000,000 shares of Preferred Stock and 25,000,000 shares of Common
Stock. On July 2, 1997, the Company effected a 34,769-for-one stock split of
each outstanding share of Common Stock by means of a stock dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1997 and for the six months ended
March 31, 1996 and 1997 are unaudited and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
the fair presentation of results for these interim periods. The results for the
six months ended March 31, 1997 are not necessarily indicative of the results to
be expected for the entire year.
CASH AND CASH EQUIVALENTS
For the purposes of the Statements of Cash Flows, the Company considers all
highly liquid investment instruments purchased with an original maturity of
three months or less to be cash equivalents. Cash and cash equivalents are
comprised of investments in various money market funds. Included in cash and
cash equivalents on the accompanying consolidated balance sheets is $175,000,
$271,000 and $0 of restricted cash as of September 30, 1995, 1996 and March 31,
1997, respectively.
INVENTORIES
Inventories are valued at the lower of cost, determined on the first-in,
first-out method or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Significant improvements are
capitalized and expenditures for maintenance and repairs are charged to expense
as incurred. Upon the sale or retirement of these assets, the applicable cost
and related accumulated depreciation are removed from the accounts and any gain
or loss is included in the statements of operations.
F-8
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Depreciation and amortization are provided on a straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer hardware and software..................................... 3 years
Production and test equipment...................................... 5 years
Furniture, fixtures and leasehold improvements..................... 5 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of developed technology and goodwill which are
being amortized over 2 1/2 and 7 years, respectively, on a straight-line basis
(see Note 6). The Company evaluates the realizability of intangible assets based
on estimates of undiscounted future cash flows over the remaining useful life of
the asset. If the amount of such estimated undiscounted future cash flows is
less than the net book value of the asset, the asset is written down to its net
realizable value. As of March 31, 1997, no such write-down was required.
DEFERRED REVENUES
Deferred revenues represent amounts collected from the Company's customers
in excess of revenues recognized. This is primarily due to annual customer
support contracts. Such amounts are recognized as revenues over the contract
term.
PRODUCT WARRANTY
The Company provides for the estimated cost to repair or replace products
under warranty when the revenues from product sales are recorded.
AGENT COMMISSIONS
In certain contracts, particularly large international contracts, the
Company may utilize an agent, who will work directly with the customer. The
Company is typically charged a commission based on the total revenues of the
contract. These charges are recorded when the revenues are recognized and
included in cost of revenues. Any earned but unpaid commissions are recorded in
accrued agent commissions.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk are accounts receivable. The Company's customer base principally
comprises the regional Bell operating companies, as well as international
telephone companies. The Company typically does not require collateral from its
customers (see Note 15).
REVENUE RECOGNITION
Revenues are generally recognized upon shipment of the equipment. In "bill
and hold" transactions, the Company recognizes revenues when the following
conditions are met: the equipment is complete,
F-9
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ready for shipment and segregated from other inventory; the Company has no
further significant performance obligations in connection with the completion of
the transaction; the commitment and delivery schedule is fixed; the customer
requested the transaction be completed on this basis; and the risks of ownership
have passed to the customer. Revenues recognized from "bill and hold"
transactions were $0, $0, $1,570,000, $0 and $0 for the period from July 1, 1994
to September 30, 1994, the years ended September 30, 1995, 1996 and the six
months ended March 31, 1996 and 1997, respectively. Accounts receivable relating
to "bill and hold" transactions were $0, $1,570,000 and $0 at September 30,
1995, 1996 and March 31, 1997, respectively. Revenues from installation,
customer support and engineering activities are recognized as services are
provided. Software license revenues are recognized upon installation or shipment
depending upon the terms of the agreement.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
Research, development and engineering expenses are charged to expense as
incurred. Engineering expenses consist of costs related to the development of
new products, enhancements to existing products and the integration of existing
products into application specific systems.
PARENT CHARGES
Parent charges are allocated to the Company from Securicor and consist of
charges for certain support and services. These charges are based on Securicor's
estimate of its total relevant costs for the applicable fiscal year, allocated
pro rata based on estimated revenues of each applicable business unit.
Management believes the method of allocation is reasonable.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No.
109 requires the liability method of accounting for deferred income taxes.
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities.
Deferred tax assets or liabilities at the end of each period are determined
using the enacted tax rates.
NET INCOME (LOSS) PER COMMON SHARE
Historical net income (loss) per common share was calculated by dividing net
income (loss) by the weighted average number of common shares outstanding for
the respective period.
Supplemental pro forma net income (loss) per common share was calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the respective period. Pursuant to the requirements of the
Securities and Exchange Commission, the calculation of supplemental pro forma
net income (loss) per common share includes the number of shares that would be
required to be sold in the initial public offering to fund the payment of the
$20,442,000 of obligations to parent and affiliates (see Note 8). In addition,
the supplemental pro forma net income (loss) per common share for the year ended
September 30, 1996 and the six months ended March 31, 1997 excludes interest
expense on the obligations to parent and affiliates of $578,000 and $322,000,
respectively, net of income taxes. Stock
F-10
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
options to be granted prior to the initial public offering have been excluded
from the calculation since the option prices will be equal to the initial public
offering price and will therefore not be dilutive (see Note 11).
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
The Company is required to adopt SFAS 128 during its fiscal year ending
September 30, 1998. The adoption of SFAS 128 is not expected to have a material
impact on the Company's calculation of net income (loss) per common share.
FOREIGN CURRENCY
The Company's sales arrangements with international customers are fixed in
the amount of U.S. dollars to be received. Relative to the activity with
obligations to parent and affiliates, the Company charges the related foreign
exchange gains and losses to the statements of operations.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT
In connection with the acquisition of the Company (see Note 1) on July 1,
1994, $6,700,000 of the purchase price was allocated to incomplete research and
development projects. Accordingly, these costs were charged to expense as of the
acquisition date. The development of these projects had not yet reached
technological feasibility and the technology had no alternative future use. The
technology acquired in the acquisition required substantial additional
development by the Company.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the period from July 1, 1994 to September 30, 1994, the years ended
September 30, 1995 and 1996, and for the six months ended March 31, 1996 and
1997, the Company paid interest of $0, $120,000, $459,000, $161,000 and
$353,000, respectively. For the period from July 1, 1994 to September 30, 1994,
the years ended September 30, 1995 and 1996, and for the six months ended March
31, 1996 and 1997, the Company paid income taxes of $0, $21,000, $495,000,
$495,000 and $2,049,000, respectively.
STOCK-BASED COMPENSATION PLANS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. This statement
also applies to transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. The Company is required to adopt
SFAS 123 in its annual financial
F-11
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
statements for the fiscal year ended September 30, 1997. The Company has elected
to adopt the disclosure requirement of this pronouncement. The adoption of the
disclosure requirements is expected to have no impact on the Company's financial
position or results of operation.
3. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------- MARCH 31,
1995 1996 1997
------------ ------------- ------------
<S> <C> <C> <C>
Billed................................................................ $ 4,634,000 $ 13,223,000 $ 7,642,000
Unbilled.............................................................. 2,860,000 2,617,000 666,000
------------ ------------- ------------
7,494,000 15,840,000 8,308,000
Less--allowance for doubtful accounts................................. (100,000) (100,000) (150,000)
------------ ------------- ------------
$ 7,394,000 $ 15,740,000 $ 8,158,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
Unbilled accounts receivable includes costs and estimated earnings on
contracts in progress which have been recognized as revenues but not yet billed
to customers under the provisions of specified contracts. Substantially, all
unbilled accounts receivables are expected to be billed and collected within one
year.
4. INVENTORIES:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- MARCH 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials........................................................... $ 3,362,000 $ 2,779,000 $ 3,733,000
Work-in-process......................................................... 882,000 199,000 629,000
Finished goods.......................................................... -- 189,000 310,000
------------ ------------ ------------
$ 4,244,000 $ 3,167,000 $ 4,672,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
5. OTHER ASSETS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------- MARCH 31,
1995 1996 1997
------------- ------------ -----------
<S> <C> <C> <C>
Acquired product development costs, net................................ $ 1,336,000 $ 1,086,000 $ 745,000
Investment in Metapath Corporation..................................... 18,000 -- --
Other.................................................................. 53,000 121,000 81,000
------------- ------------ -----------
$ 1,407,000 $ 1,207,000 $ 826,000
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
F-12
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
5. OTHER ASSETS: (CONTINUED)
The acquired product development costs relate to the development of an
Integrated Services Digital Network ("ISDN") product which is sold in the United
States. This asset was purchased from Securicor 3Net Ltd. ("3Net"), an affiliate
of Securicor. Completion of this ISDN product occurred in October 1995.
Therefore, as of September 30, 1995, the Company did not have any amortization
expense related to these costs. Amortization was computed by multiplying the
ratio of current revenues for the product to total and anticipated future
revenues for the product by acquired costs. Amortization expense was $250,000
for the year ended September 30, 1996 and $341,000 for the six months ended
March 31, 1997. The Company's business activities related to the ISDN product
were performed through its wholly-owned subsidiary, Securicor 3Net, Inc. During
the year ended September 30, 1996 and the six months ended March 31, 1997, the
Company sold certain products related to this technology and recognized certain
costs and realized all of the revenues related to such activities. For the year
ended September 30, 1996, the Company recognized revenues of $792,000 and cost
of revenues of $714,000 relating to such activities. For the six months ended
March 31, 1997, the Company recognized revenues of $1,129,000 and cost of
revenues of $732,000 relating to such activities. These amounts are included in
unrelated third party revenues and cost of revenues. As of September 30, 1995,
1996 and March 31, 1997, related to these activities, the Company had no
receivables and $994,000, $296,000 and $0, respectively, of payables to this
entity which are included in obligations to parent and affiliates. Additionally,
as of September 30, 1995, 1996 and March 31, 1997, the Company had billed
accounts receivable of $0, $610,000 and $96,000 from the one unrelated third
party who purchased this product. In May 1997, the Company transferred all of
its stock in Securicor 3Net, Inc. to an affiliate of Securicor at net book value
due to the related party nature of the transaction.
On January 20, 1995, the Company invested approximately $500,000 in exchange
for an initial 44.4% ownership interest in Metapath Corporation ("Metapath"). In
a series of transactions which took place from January 20, 1995 through May 2,
1996, the Company's ownership interest was reduced, first to 23.7%, then to
19.9%, and on May 2, 1996, its ownership interest was purchased by Metapath for
the original amount of approximately $500,000. In addition, on May 2, 1996,
Metapath acquired certain technology from the Company for $1,500,000. This
investment was accounted for using the equity method of accounting. Accordingly,
the Company reduced the carrying value of its investment for its portion of the
investee's loss. The Company's equity in loss of Metapath was $494,000 and
$18,000 for fiscal 1995 and fiscal 1996, respectively.
Set forth below are the related party transactions between the Company and
Metapath for the time periods during which the investment was held. The accounts
receivable and accounts payable data is as of September 30, 1995.
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM OCTOBER 1,
JANUARY 20, 1995 1995
TO TO
SEPTEMBER 30, 1995 MAY 2, 1996
------------------ --------------
<S> <C> <C>
Sales to Metapath............................................................. $ 381,000 $ 544,000
Accounts receivable from Metapath............................................. $ 165,000 --
Accounts payable to Metapath.................................................. $ 50,000 --
</TABLE>
Metapath was formed effective October 1, 1994 with an initial capitalization
of $2,600,000 and during its year ended September 30, 1995, Metapath was in the
start-up phase of its operations. While the Company has not been provided with
Metapath's final financial statements for the year ended September
F-13
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
5. OTHER ASSETS: (CONTINUED)
30, 1995, the Company's management has been advised that Metapath incurred a
loss in excess of $1,300,000 for its initial year of operations. The Company did
not guarantee any indebtedness of Metapath and as a result, the Company has
limited the recorded equity in Metapath's losses to the amount of its original
investment.
Metapath has continued to be a customer of the Company after May 2, 1996 and
sales for the period from May 2, 1996 to September 30, 1996 and the six months
ended March 31, 1997 were $1,622,000 and $1,120,000, respectively.
The Company has not provided audited financial statements of Metapath
because they do not exist. The Company believes that this additional information
is not material.
6. INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------- MARCH 31,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Developed technology.................................................... $ 1,800,000 $ 1,800,000 $ 1,800,000
Goodwill................................................................ 308,000 308,000 308,000
------------ ------------ ------------
2,108,000 2,108,000 2,108,000
Less--Accumulated amortization.......................................... (955,000) (1,719,000) (1,921,000)
------------ ------------ ------------
$ 1,153,000 $ 389,000 $ 187,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- MARCH 31,
1995 1996 1997
--------- ---------- -----------
<S> <C> <C> <C>
Term note payable, payable in annual installments of $98,000 plus interest at
5.3% through 1998........................................................... $ -- $ 196,000 $ 98,000
Capitalized lease obligations, payable in monthly installments of $8,500
including interest at 15% through 1998...................................... -- 136,000 87,000
--------- ---------- -----------
-- 332,000 185,000
--------- ---------- -----------
Less--Current portion......................................................... -- (185,000) (185,000)
--------- ---------- -----------
$ -- $ 147,000 $ --
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
Maturities of long-term debt as of September 30, 1996, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- ----------------------------------------------------------------------------------
<S> <C>
1997.............................................................................. $ 185,000
1998.............................................................................. 147,000
----------
$ 332,000
----------
----------
</TABLE>
F-14
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
7. LONG-TERM DEBT: (CONTINUED)
In March 1996, the Company entered into a $294,000 term note payable with an
equipment vendor for the purchase of computer hardware and software and the
related maintenance agreements. Included in this amount is $249,000 of computer
hardware and software which has been recorded in property and equipment and the
related $45,000 maintenance contract prepayment which has been recorded in other
current assets. This term note payable is payable in three equal annual
installments of $98,000. The first of these three payments was paid in fiscal
1996. The interest rate charged on this term note payable is 5.3%. Interest
expense for the year ended September 30, 1996 and the six months ended March 31,
1997 was $6,000 and $6,000 respectively.
In April 1996, the Company entered into a $177,000 lease obligation that
qualified as a capital lease for the purchase of computer hardware and software
and the related maintenance agreements. Included in this amount is $148,000 of
computer hardware and software which has been recorded in property and equipment
and the related $29,000 maintenance contract prepayment which has been recorded
in other current assets. This lease is payable in 24 equal monthly installments
of $8,500. The implicit interest rate charged on this obligation is 15%.
Interest expense for the year ended September 30, 1996 and the six months ended
March 31, 1997 was $10,000 and $11,000, respectively. Assets acquired under
capital leases at a cost of $148,000 and $148,000 less accumulated amortization
of $24,000 and $49,000 are included in property and equipment at September 30,
1996 and March 31, 1997, respectively.
8. OBLIGATIONS TO PARENT AND AFFILIATES:
Information relative to the Company's obligations to parent and affiliates
is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------- MARCH 31,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Obligations to parent:
Interest free..................................................... $ 14,427,000 $ 12,326,000 $ 12,326,000
Interest bearing.................................................. 2,712,000 10,512,000 8,972,000
Other............................................................. 237,000 190,000 177,000
------------- ------------- -------------
Total obligations to parent..................................... 17,376,000 23,028,000 21,475,000
------------- ------------- -------------
Obligation to affiliates:
Receivable from affiliates........................................ (319,000) (33,000) (33,000)
Payables to affiliates............................................ 1,404,000 296,000 38,000
------------- ------------- -------------
Total obligations to affiliates, net............................ 1,085,000 263,000 5,000
------------- ------------- -------------
Total obligations to parent and affiliates.......................... $ 18,461,000 $ 23,291,000 $ 21,480,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Company has been funded through advances from its parent (Securicor).
Certain advances are interest bearing and are loaned to the Company at a base
rate plus 1%. For the period from July 1, 1994 to September 30, 1994 and the
years ended September 30, 1995 and 1996, the interest rate charged on these
obligations ranged from 6.25% to 6.75%, 6.75% to 7.75% and 6.75% to 7.75%,
respectively. Interest expense for the period from July 1, 1994 to September 30,
1994, the years ended September 30, 1995 and 1996 and the six months ended March
31, 1996 and 1997, was $9,000, $141,000, $578,000, $262,000 and
F-15
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
8. OBLIGATIONS TO PARENT AND AFFILIATES: (CONTINUED)
$322,000, respectively. As these obligations to parent and affiliates are due on
demand, this net amount is included in current liabilities. In connection with
the initial public offering, $20,442,000 of the total obligations to parent and
affiliates will be paid (see Note 1). In May 1997, the remaining balance of
$1,038,000 was transferred to an affiliate of Securicor in connection with the
Securicor 3Net, Inc. transaction (see Note 5).
9. INTEREST EXPENSE, NET:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994 YEAR ENDED SEPTEMBER SIX MONTHS ENDED MARCH
TO 30, 31,
SEPTEMBER 30, ---------------------- ----------------------
1994 1995 1996 1996 1997
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest expense on obligations to parent......... $ 9,000 $ 141,000 $ 578,000 $ 262,000 $ 322,000
Interest expense.................................. -- -- 16,000 5,000 17,000
Interest income................................... -- (29,000) (80,000) (40,000) (60,000)
------ ---------- ---------- ---------- ----------
$ 9,000 $ 112,000 $ 514,000 $ 227,000 $ 279,000
------ ---------- ---------- ---------- ----------
------ ---------- ---------- ---------- ----------
</TABLE>
10. OTHER INCOME:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994 YEAR ENDED SEPTEMBER SIX MONTHS ENDED MARCH
TO 30, 31,
SEPTEMBER 30, ---------------------- ----------------------
1994 1995 1996 1996 1997
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Litigation settlement gain........................ $ -- $ -- $ 350,000 $ 350,000 $ --
Miscellaneous..................................... 66,000 148,000 80,000 63,000 54,000
------------- ---------- ---------- ---------- ----------
$ 66,000 $ 148,000 $ 430,000 $ 413,000 $ 54,000
------------- ---------- ---------- ---------- ----------
------------- ---------- ---------- ---------- ----------
</TABLE>
On December 6, 1995, the Company entered into a litigation settlement
agreement whereby the Company was awarded $350,000. This settlement is to be
paid over three years. The Company received $164,000 in 1996 and $118,000 during
the six months ended March 31, 1997. The remaining balance of $68,000 is
included in other current assets.
11. STOCKHOLDER'S EQUITY:
1997 STOCK INCENTIVE PLAN
In May 1997, the Company established the 1997 Stock Incentive Plan (the
"1997 Plan") which authorized 450,000 shares of Common Stock to be issued. Under
the 1997 Plan, a variety of awards, including stock options, stock appreciation
rights and restricted and unrestricted stock grants may be made to the Company's
employees, officers, consultants and advisors. Common stock options may be
granted either in the form of incentive stock options or non-statutory stock
options. The option exercise price of
F-16
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
11. STOCKHOLDER'S EQUITY: (CONTINUED)
incentive stock options may not be less than the fair market value of the Common
Stock on the date of the grant. In May 1997, options to purchase 321,366 shares
of Common Stock were granted under the 1997 Plan to the employees, officers and
directors of the Company at an exercise price equal to the initial public
offering price per share. One third of these options vest 90 days after
completion of the Company's initial public offering and the remaining two-thirds
vest on the first and second anniversaries of the date of grant, respectively.
No additional options to purchase Common Stock have been granted to date.
12. EMPLOYEE BENEFIT PLAN:
Prior to July 1994, TeleSciences, Inc. had a profit-sharing retirement plan
and a thrift plan which covered substantially all employees. In connection with
the acquisition on July 1, 1994, all balances in the profit-sharing retirement
plan were transferred into the thrift plan. The thrift plan's name is now Axiom
Inc. Thrift/401(k) Plan (the "Plan"). Upon this transfer, all balances were 100%
vested. With respect to the Plan, eligible employees must have one year of
service with the Company and be 18 years of age. An employee may contribute both
pre- and post-tax dollars to the Plan, subject to certain limitations, as
defined by the Plan. The employer contributions to the Plan are equal to 75% of
the employee's basic pre-tax contribution up to certain limits, as defined. The
Company's contribution to the Plan for the period from July 1, 1994 to September
30, 1994, and for the years ended September 30, 1995 and 1996 was $60,000,
$245,000, and $277,000, respectively.
13. RELATED PARTY TRANSACTIONS:
The Company entered into two separate agreements with Securicor Radiocoms
Ltd., an affiliate of Securicor. The first agreement provided that the Company
construct product for Securicor Radiocoms Ltd. and bill for all costs incurred
in addition to a certain profit percentage, as defined. The second agreement
provided for the construction of additional product for Securicor Radiocoms
Ltd., which was billed at a fixed price per unit. The Company recognized
revenues from Securicor Radiocoms Ltd. for the period from July 1, 1994 to
September 30, 1994, the years ended September 30, 1995 and 1996 and the six
months ended March 31, 1996 and 1997 of $0, $1,421,000, $2,323,000, $2,040,000
and $0, respectively. The Company recognized cost of revenues related to these
revenues for the period from July 1, 1994 to September 30, 1994, the years ended
September 30, 1995 and 1996 and the six months ended March 31, 1996 and 1997 of
$0, $1,112,000, $1,732,000, $1,488,000 and $0, respectively. As of September 30,
1995, 1996 and March 31, 1997, related to these agreements, the Company had
receivables of $319,000, $31,000 and $22,000, respectively, which are included
in obligations to parent and affiliates and $410,000, $0 and $0, respectively,
of advances from Securicor Radiocoms Ltd. which are included in obligations to
parent and affiliates. As of September 30, 1995, 1996 and March 31, 1997,
$99,000, $0 and $0, respectively, of costs were included in other current assets
related to these agreements.
During the year ended September 30, 1996, certain key executive officers
were granted options to purchase the common stock of Securicor. The aggregate
number of options granted to these executive officers was 104,050. The exercise
price of these options was L2.45 per share, which was the fair market value of
Securicor common stock on the date of grant. These options vest on the third
anniversary of the date of grant. These options expire in June 2006 which is ten
years from the date of grant.
F-17
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
14. INCOME TAXES:
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994 YEAR ENDED
TO SEPTEMBER 30,
SEPTEMBER 30 ------------------------
1994 1995 1996
------------- ---------- ------------
<S> <C> <C> <C>
Current:
Federal............................................................... $ 18,000 $ 220,000 $ 1,170,000
State................................................................. 5,000 74,000 374,000
------------- ---------- ------------
23,000 294,000 1,544,000
------------- ---------- ------------
Deferred:
Federal............................................................... (2,328,000) (219,000) (1,000)
State................................................................. (411,000) (40,000) --
------------- ---------- ------------
(2,739,000) (259,000) (1,000)
------------- ---------- ------------
$(2,716,000) $ 35,000 $ 1,543,000
------------- ---------- ------------
------------- ---------- ------------
</TABLE>
Income tax expense differs from the amount currently payable because certain
expenses, primarily depreciation and accruals, are reported in different periods
for financial reporting and income tax purposes.
The federal statutory income tax is reconciled to the effective income tax
rate as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994 YEAR ENDED SEPTEMBER
TO 30,
SEPTEMBER 30 --------------------
1994 1995 1996
--------------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate......................................................... (34.0)% 34.0% 34.0%
State income taxes, net of federal benefit..................................... (5.9 ) 5.9 5.9
Other.......................................................................... -- (2.3) (1.7)
----- --------- ---------
(39.9 )% 37.6% 38.2%
----- --------- ---------
----- --------- ---------
</TABLE>
F-18
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
14. INCOME TAXES: (CONTINUED)
The components of the net current and long-term deferred tax assets and
liabilities, measured under SFAS No. 109, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
Deferred tax assets--
Charge for purchased research and development................... $ 2,825,000 $ 2,910,000
Accruals........................................................ 314,000 408,000
Other........................................................... 229,000 99,000
------------ ------------
3,368,000 3,417,000
Deferred tax liabilities--
Depreciation.................................................... 10,000 90,000
Other........................................................... 41,000 9,000
------------ ------------
51,000 99,000
------------ ------------
Net deferred tax assets....................................... $ 3,317,000 $ 3,318,000
------------ ------------
------------ ------------
</TABLE>
Management believes a valuation allowance was not required for the net
deferred tax assets due to the Company's earnings history taking into
consideration the nonrecurring charge for purchased research and development.
This charge represents the significant portion of the net deferred tax assets.
These factors cause management to believe it is more likely than not that the
net deferred tax assets will be realized.
15. CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company's operations are conducted in one business segment. The
Company's revenues originated from the following geographic destinations:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994 YEAR ENDED SIX MONTHS
TO SEPTEMBER 30, ENDED MARCH 31,
SEPTEMBER 30, ---------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
North America........................ $ 2,927,000 $ 15,541,000 $ 28,282,000 $ 7,224,00 $ 10,938,000
South America........................ 2,666,000 7,604,000 2,471,000 817,000 410,000
United Kingdom (related party)....... -- 1,421,000 2,323,000 2,040,000 --
Other................................ 13,000 1,002,000 888,000 699,000 702,000
------------- ------------- ------------- ------------- -------------
$ 5,606,000 $ 25,568,000 $ 33,964,000 $ 10,780,000 $ 12,050,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
F-19
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
15. CUSTOMER AND GEOGRAPHIC INFORMATION: (CONTINUED)
The following table summarizes significant customers with revenues in excess
of 10% of the Company's revenues in any given period presented:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1994 YEAR ENDED SIX MONTHS
TO SEPTEMBER 30, ENDED MARCH 31,
SEPTEMBER 30, -------------------------- --------------------------
CUSTOMER 1994 1995 1996 1996 1997
- ------------------------------------------ ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Ameritech Corporation..................... $ 1,509,000 $ 4,277,000 $ 4,431,000 $ 912,000 $ 1,028,000
Puerto Rico Telephone Co. ................ -- 101,000 3,199,000 2,197,000 6,000
Southwestern Bell Telephone Company....... 28,000 1,478,000 6,289,000 1,628,000 1,786,000
Telecom Argentina......................... 2,642,000 4,353,000 1,170,000 38,000 379,000
Telecommunications of Jamaica, Ltd........ -- 930,000 823,000 685,000 100,000
U S West, Inc............................. 1,143,000 7,349,000 10,219,000 1,905,000 3,890,000
</TABLE>
The failure of any of the Company's significant customers to continue to
purchase products and services from the Company, or any significant delay in
orders from such customers, could have a material adverse effect on the
Company's results of operations and financial condition.
16. COMMITMENTS AND CONTINGENCIES:
The Company has entered into noncancelable operating leases for its office
and manufacturing facilities, production and test equipment and fixtures. The
total rental for production and test equipment and fixtures for the period from
July 1, 1994 to September 30, 1994 and for the years ended September 30, 1995
and 1996 was $56,000, $267,000 and $266,000, respectively. These lease
agreements provide that the Company will pay all insurance, maintenance and
repairs.
In addition, the Company leases its office and manufacturing facilities
under long-term operating leases. The rental on the office and manufacturing
facilities for the period from July 1, 1994 to September 30, 1994 and for the
years ended September 30, 1995 and 1996 was $117,000, $334,000 and $322,000,
respectively. The amounts payable under these leases are subject to
renegotiation at various intervals specified in the leases.
Future minimum rental payments as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- ----------------------------------------------------------------------------------
<S> <C>
1997.............................................................................. $ 341,000
1998.............................................................................. 227,000
----------
$ 568,000
----------
----------
</TABLE>
The Company is obligated to make certain payments, as defined, to certain
key Company employees if these employees are terminated. In addition, certain
key employees have performance incentives in the form of cash and equity (in the
parent or an affiliate) related compensation. The Company does not expect to
make these payments other than in the normal course of business.
F-20
<PAGE>
AXIOM INC. AND SUBSIDIARIES (NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE SIX MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
16. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company is party to various claims arising in the ordinary course of
business. Although the ultimate outcome of these matters is presently not
determinable, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position or results of
operations.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Axiom Inc. (formerly Securicor Communications Inc.):
We have audited the accompanying statements of revenues and certain expenses
and certain cash flows for the year ended June 30, 1994 of the Predecessor
Business (see Note 1). These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The statements of revenues and certain expenses and certain cash flows have
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the Form S-1 filing of
Axiom Inc. (formerly Securicor Communications Inc.)) as described in Note 1 and
is not intended to be a complete presentation of the financial results and cash
flows of the Predecessor Business.
In our opinion, the statements of revenues and certain expenses and certain
cash flows referred to above present fairly, in all material respects, the
revenues and certain expenses and cash flows of the Predecessor Business for the
year ended June 30, 1994, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.,
March 7, 1997
F-22
<PAGE>
PREDECESSOR BUSINESS (NOTE 1)
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED JUNE 30, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Equipment....................................................................... $ 13,963
Services........................................................................ 6,266
---------
Total revenues.............................................................. 20,229
---------
COST OF REVENUES:
Equipment....................................................................... 8,785
Services........................................................................ 4,018
---------
Total cost of revenues...................................................... 12,803
---------
Gross profit................................................................ 7,426
---------
OPERATING EXPENSES:
Research, development and engineering........................................... 5,450
Selling, general and administrative............................................. 4,985
---------
Total operating expenses.................................................... 10,435
---------
OPERATING LOSS.................................................................... $ (3,009)
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-23
<PAGE>
PREDECESSOR BUSINESS (NOTE 1)
STATEMENT OF CERTAIN CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1994
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $ (3,009)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation..................................................................... 1,114
Changes in assets and liabilities, net-
Decrease (increase) in.........................................................
Accounts receivable.......................................................... 2,012
Inventories.................................................................. 1,778
Other current assets......................................................... (56)
Other assets................................................................. 193
Increase (decrease) in-
Accounts payable............................................................. 172
Other accrued expenses....................................................... 444
Deferred revenues............................................................ (1,458)
---------
Net cash used in operating activities...................................... 1,190
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............................................. (1,222)
---------
Net cash used in investing activities...................................... (1,222)
---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.......................................... (32)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................... 32
---------
CASH AND CASH EQUIVALENTS, END OF YEAR............................................. $ --
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
PREDECESSOR BUSINESS
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
AND CERTAIN CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1994
1. BASIS OF PRESENTATION:
On July 1, 1994, Axiom Inc. (formerly Securicor Communications Inc.) (the
"Company") purchased the net assets of the wireline division of TeleSciences,
Inc. ("TeleSciences"). The net assets acquired are referred to as the
"Predecessor Business." In connection with the Company's initial public offering
as contemplated in this Prospectus, the accompanying financial statement has
been prepared to comply with the rules and regulations of the Securities and
Exchange Commission. These rules and regulations require a statement of revenues
and certain expenses of the Predecessor Business. This statement does not
include interest, income taxes and TeleSciences' corporate management fees. The
Company's parent charges were $386,000 and $403,000 for the fiscal years ended
September 30, 1995 and 1996, respectively (see Axiom Inc. and subsidiaries
Consolidated Financial Statements).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
For the purposes of the Statement of Certain Cash Flows, the Company
considers all highly liquid investment instruments purchased with an original
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenues were generally recognized upon shipment of the equipment and, if
recognized prior to shipment, upon completion of customer acceptance where risks
of ownership are transferred to the customer. Revenues from installation and
customer support activities were recognized as services were provided. Software
license revenues were recognized upon installation or shipment depending upon
the terms of the agreement.
AGENT COMMISSIONS
In certain contracts, particularly large international contracts, the
Predecessor Business may have utilized an agent, who worked directly with the
customer. The Predecessor Business was typically charged a commission based on
the total revenues of the contract. These charges were recorded when the
revenues were recognized and included in cost of revenues.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
Research, development and engineering expenses were charged to expense as
incurred. Engineering expenses consisted of costs related to the development of
new products, enhancements to existing products and the integration of existing
products into application specific systems.
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-25
<PAGE>
PREDECESSOR BUSINESS
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
AND CERTAIN CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 1994
3. CUSTOMER AND GEOGRAPHIC INFORMATION:
The Predecessor Business' operations were conducted in one business segment.
The Predecessor Business' revenues originated from the following geographic
destinations:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1994
-------------
<S> <C>
North America.................................................................. $ 12,366,000
South America.................................................................. 7,388,000
Other.......................................................................... 475,000
-------------
$ 20,229,000
-------------
-------------
</TABLE>
The following table summarizes significant customers with revenues in excess
of 10% of the Predecessor Business' revenues for the year ended June 30, 1994:
<TABLE>
<CAPTION>
CUSTOMER AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
Ameritech Corporation........................................................... $ 4,949,000
Telecom Argentina............................................................... 3,945,000
U S West, Inc................................................................... 4,872,000
</TABLE>
F-26
<PAGE>
[Description of graphics to be inserted:
Inside Back Cover: Photos of the Company's headquarters and products with
the Company's name and the phrase "absolute value" and the following text:
"Committed to our customers for over 25 years ... a proven leader providing
billing data collection and traffic measurement systems worldwide. We represent
a powerful market presence with a long history of security, reliability and
integrity assuring our absolute commitment to our customers."]
<PAGE>
- ---------------------------------------------------------
---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE U.S.
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 6
The Company....................................... 12
Use of Proceeds................................... 12
Dividend Policy................................... 12
Capitalization.................................... 13
Dilution.......................................... 14
Selected Financial Data........................... 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 18
Business.......................................... 26
Management........................................ 43
Principal Stockholders............................ 48
Certain Transactions.............................. 48
Description of Capital Stock...................... 50
Shares Eligible for Future Sale................... 52
Underwriting...................................... 53
Legal Matters..................................... 56
Experts........................................... 56
Additional Information............................ 56
Index to Consolidated Financial Statements........ F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS U.S.
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,600,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
, 1997
---------------------
LEHMAN BROTHERS
J.P. MORGAN & CO.
- ---------------------------------------------------------
---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 3, 1997
PROSPECTUS
2,600,000 SHARES
[LOGO]
(SUCCESSOR TO SECURICOR TELESCIENCES INC.)
COMMON STOCK
--------------
All of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by Axiom Inc. (the "Company"), the
successor to Securicor Telesciences Inc. Of the 2,600,000 shares of Common Stock
offered hereby, are initially being offered outside the United States and
Canada by the International Managers (the "International Offering") and are
initially being offered in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering" and, together with the International Offering, the
"Offering"). See "Underwriting." The initial public offering price and
underwriting discounts and commissions per share are identical for both the
International Offering and the U.S. Offering. The closing of the International
Offering is a condition to the closing of the U.S. Offering and the closing of
the U.S. Offering is a condition to the closing of the International Offering.
Of the net proceeds from the sale by the Company of the Common Stock,
approximately $20.4 million will be used to repay certain indebtedness from the
Company's sole stockholder. See "Use of Proceeds" and "Certain Transactions."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Common
Stock has been approved for quotation on The Nasdaq National Market ("Nasdaq")
under the symbol "AXIM."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share............................. $ $ $
Total (3)............................. $ $ $
</TABLE>
(1) The Company and an affiliate of its sole stockholder have agreed to
indemnify the International Managers and the U.S. Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting estimated expenses of $925,000 payable by the Company.
(3) The Company has granted the International Managers and the U.S. Underwriters
30-day options to purchase up to an aggregate of 390,000 additional shares
of Common Stock on the same terms and conditions as set forth above solely
to cover over-allotments, if any. If such options are exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively. See
"Underwriting."
---------------------
The shares of Common Stock offered by this Prospectus are offered by the
International Managers subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
International Managers and to certain further conditions. It is expected that
delivery of certificates for the shares of Common Stock will be made at the
offices of Lehman Brothers Inc., New York, New York, on or about , 1997.
---------------------
LEHMAN BROTHERS J.P. MORGAN SECURITIES LTD.
, 1997
<PAGE>
- ---------------------------------------------------------
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
INTERNATIONAL MANAGERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 6
The Company....................................... 12
Use of Proceeds................................... 12
Dividend Policy................................... 12
Capitalization.................................... 13
Dilution.......................................... 14
Selected Financial Data........................... 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 18
Business.......................................... 26
Management........................................ 43
Principal Stockholders............................ 48
Certain Transactions.............................. 48
Description of Capital Stock...................... 50
Shares Eligible for Future Sale................... 52
Underwriting...................................... 53
Legal Matters..................................... 56
Experts........................................... 56
Additional Information............................ 56
Index to Consolidated Financial Statements........ F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
INTERNATIONAL MANAGERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,600,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
, 1997
---------------------
LEHMAN BROTHERS
J.P. MORGAN SECURITIES LTD.
- ---------------------------------------------------------
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- ---------------------------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses in connection with the issuance and
distribution of the securities being registered, all of which are being borne by
the Registrant.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 11,779
---------
National Association of Securities Dealers, Inc. fee.............. 4,387
---------
Nasdaq Stock Market Inc./National Market listing fee.............. 36,667
---------
Printing and engraving expenses................................... 150,000
Accountants' fees and expenses.................................... 335,000
Legal fees and expenses........................................... 250,000
Blue Sky qualification fees and expenses.......................... 2,500
Transfer agent's fees and expenses................................ 25,000
---------
Miscellaneous..................................................... 109,667
---------
TOTAL....................................................... $ 925,000
---------
---------
</TABLE>
The foregoing, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. fee, and
the Nasdaq Stock Market fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporation Law of the State of Delaware,
as amended, the Registrant has the power to indemnify directors and officers
under certain prescribed circumstances and subject to certain limitations
against certain costs and expenses, including attorneys' fees actually and
reasonably incurred in connection with any action, suit or proceeding, whether
civil, criminal, administrative or investigative, to which any of them is a
party by reason of his being a director or officer of the Registrant if it is
determined that he acted in accordance with the applicable standard of conduct
set forth in such statutory provision.
Article VII of the Registrant's Amended and Restated By-laws filed as
Exhibit 3.2 hereto, provides that the Registrant shall indemnify directors and
officers of the Registrant against all expenses, liability and loss incurred as
a result of such person's being a party to, or threatened to be made a party to,
any action, suit or proceeding by reason of the fact that he or she is or was a
director or officer of the Registrant or is or was serving at the request of the
Registrant as a director, officer, employee or agent of another enterprise, to
the fullest extent authorized by the General Corporation Law of the State of
Delaware. Article VII further permits the Registrant to maintain insurance, at
its expense, to protect itself and any such director or officer of the
Registrant or another enterprise against any such expenses, liability or loss,
whether or not the Registrant would have the power to indemnify such person
against such expense, liability or loss under the General Corporation Law of the
State of Delaware. Article VII of the Registrant's By-laws, also generally
permits the Registrant, at its discretion, to indemnify other employees and
agents to the fullest extent authorized by the General Corporation Law of the
State of Delaware.
The Registrant intends to purchase directors' and officers' liability
insurance.
See Section 9 of the U.S. Underwriting Agreement and Section of the
International Underwriting Agreement, filed as Exhibits 1.1 and 1.2 hereto,
respectively, pursuant to which the Underwriters agree to indemnify the
Registrant, its directors, officers and controlling persons against certain
liabilities, including liabilities under the Securities Act of 1933.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<C> <S>
*1.1 Form of U.S. Underwriting Agreement.
*1.2 Form of International Underwriting Agreement.
2 Agreement and Plan of Merger between STI and the Company, dated May 23, 1997.
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-laws of the Company.
*5 Opinion of Wolf, Block, Schorr and Solis-Cohen with respect to the legality of the securities being
offered.
10.1 1997 Stock Incentive Plan.
10.2 Employment Agreement between STI and Andrew Maunder, dated July 1, 1994.
10.3 Employment Agreement between STI and Donald Hoffman, dated July 1, 1994.
10.4 Employment Agreement between STI and William J. Rahe, Jr., dated February 15, 1995.
10.5 Employment Agreement between STI and Joseph F. Gorecki, dated March 10, 1995.
10.6 Employment Agreement between STI and Michael S. Farina, dated January 31, 1997.
10.7 Agreement between Ameritech Services, Inc. and STI, dated October 11, 1989, as amended.
10.8 General Procurement Agreement between U S West Communications, Inc. and the Company dated May 1, 1991, as
amended.
10.9 General Procurement Contract for Computer Equipment Software and Services between Southwestern Bell
Telephone Company and STI, dated June 1, 1995.
10.10 Lease Agreement between STI and Line Lexington Management Corp. dated June 13, 1988, as amended effective
September 1, 1993.
10.11 Form of International Marketing Services Agreement between the Company and Securicor, including Schedule
A thereto.
10.12 Revised Form of Services Agreement between the Company and 3Net Delaware.
10.13 Form of Registration Rights Agreement by and between the Company and Securicor.
10.14 Stock Purchase Agreement between the Company and Securicor 3 Net Limited dated May 22, 1997.
11 Statement regarding Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
*23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Wolf, Block, Schorr and Solis-Cohen (included as part of Exhibit 5).
23.3 Consent of Robert B. Kelly.
24 Power of Attorney (included on signature page of this Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith.
II-2
<PAGE>
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable or the required information is given in
the Financial Statements or Notes thereto, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to Item 14 above, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registrant's Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Moorestown, New Jersey, on the 3rd day of July, 1997.
AXIOM INC.
By: /s/ ANDREW P. MAUNDER
-----------------------------------------
Andrew P. Maunder
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registrant's Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
DATE
-------------------
*
- ------------------------------ Chairman July 3, 1997
Edmund A. Hough
Director, President and
/s/ ANDREW P. MAUNDER Chief Executive Officer
- ------------------------------ (principal executive July 3, 1997
Andrew P. Maunder officer)
/s/ MARK J. KADISH Chief Financial Officer
- ------------------------------ (principal financial and July 3, 1997
Mark J. Kadish accounting officer)
*
- ------------------------------ Director July 3, 1997
Sammy W. Pearson
*
- ------------------------------ Director July 3, 1997
Trevor Sokell
*
- ------------------------------ Director July 3, 1997
Michael G. Wilkinson
*By: /s/ ANDREW P. MAUNDER
-------------------------
Andrew P. Maunder
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- ---------
<C> <S>
*1.1 Form of U.S. Underwriting Agreement.
*1.2 Form of International Underwriting Agreement.
2 Agreement and Plan of Merger between STI and the Company, dated May 23, 1997.
3.1 Amended and Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-laws of the Company.
*5 Opinion of Wolf, Block, Schorr and Solis-Cohen with respect to the legality of the securities being
offered.
10.1 1997 Stock Incentive Plan.
10.2 Employment Agreement between STI and Andrew Maunder, dated July 1, 1994.
10.3 Employment Agreement between STI and Donald Hoffman, dated July 1, 1994.
10.4 Employment Agreement between STI and William J. Rahe, Jr., dated February 15, 1995.
10.5 Employment Agreement between STI and Joseph F. Gorecki, dated March 10, 1995.
10.6 Employment Agreement between STI and Michael S. Farina, dated January 31, 1997.
10.7 Agreement between Ameritech Services, Inc. and STI, dated October 11, 1989, as amended.
10.8 General Procurement Agreement between U S West Communications, Inc. and the Company dated May 1, 1991, as
amended.
10.9 General Procurement Contract for Computer Equipment Software and Services between Southwestern Bell
Telephone Company and STI, dated June 1, 1995.
10.10 Lease Agreement between STI and Line Lexington Management Corp. dated June 13, 1988, as amended effective
September 1, 1993.
10.11 Form of International Marketing Services Agreement between the Company and Securicor, including Schedule
A thereto.
10.12 Revised Form of Services Agreement between the Company and 3Net Delaware.
10.13 Form of Registration Rights Agreement by and between the Company and Securicor.
10.14 Stock Purchase Agreement between the Company and Securicor 3 Net Limited dated May 22, 1997.
11 Statement regarding Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
*23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Wolf, Block, Schorr and Solis-Cohen (included as part of Exhibit 5).
23.3 Consent of Robert B. Kelly.
24 Power of Attorney (included on signature page of this Registration Statement).
27 Financial Data Schedule.
</TABLE>
- ------------------------
* Filed herewith.
<PAGE>
Exhibit 1.1
2,080,000 Shares
Axiom Inc.
Common Stock
U.S. UNDERWRITING AGREEMENT
---------------------------
July , 1997
LEHMAN BROTHERS INC.
J.P. MORGAN SECURITIES INC.
As Representatives of the several
U.S. Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Axiom Inc., a Delaware corporation (the "Company") and an indirect
wholly-owned subsidiary of Security Services plc, a corporation organized
under the laws of England and Wales (the "Parent"), proposes to sell
2,080,000 shares (the "Firm Stock") of the Company's Common Stock, par value
$0.01 per share (the "Common Stock"), to the several U.S. Underwriters named in
Schedule 1 hereto (together, the "U.S. Underwriters"). In addition, the Company
proposes to grant to the U.S. Underwriters options to purchase up to an
additional 312,000 shares of the Common Stock on the terms and for the purposes
set forth in Section 2 (the "Option Stock"). The Firm Stock and the Option
Stock, if purchased, are hereinafter collectively called the "U.S. Stock." This
is to confirm the agreement concerning the purchase of the U.S. Stock from the
Company by the U.S. Underwriters.
It is understood by all parties that the Company and the Parent are
concurrently entering into an agreement dated the date hereof (the
"International Underwriting Agreement") providing for the sale by the Company
of an aggregate of 598,000 shares of the Common Stock (including the
over-allotments option thereunder, the "International Stock") through
arrangements with certain U.S. Underwriters outside the United States and
Canada (the "International Managers"), for whom Lehman Brothers International
(Europe) and J.P. Morgan Securities LTD. are
1
<PAGE>
acting as lead managers (the "Lead Managers"). Except as used in Sections 2, 3,
4, 10 and 11 herein, and except as the context may otherwise require, references
herein to the "Stock" shall include all the Common Stock that may be sold
pursuant to either this Agreement or the International Underwriting Agreement.
The U.S. Underwriters and the International Managers simultaneously are entering
into an agreement among the U.S. and international underwriting syndicates
(the "Agreement Between U.S. Underwriters and International Managers") which
provides for, among other things, the transfer of the Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of the Stock contemplated by the foregoing, one relating to
the U.S. Stock and one relating to the International Stock. The international
form of prospectus will be identical to the U.S. prospectus except for certain
substitute pages as included in the registration statement and amendments
thereto referred to below. References herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
both the U.S. and international versions thereof. The U.S. Underwriters and
the International Managers are collectively referred to herein as the
"Underwriters."
1. Representations, Warranties and Agreements of the Company and the
Parent. The Company and the Parent represent, warrant and agree, severally
and jointly, that:
(a) A registration statement on Form S-1 (File No. 333-25439), including
all amendments thereto, with respect to the Stock has (i) been prepared by
the Company in conformity with the requirements of the United States
Securities Act of 1933, as amended (the "Securities Act"), and the rules
and regulations (the "Rules and Regulations") of the United States
Securities and Exchange Commission (the "Commission") thereunder,
(ii) been filed with the Commission under the Securities Act and
(iii) become effective under the Securities Act. Copies of such
registration statement and of the amendments thereto have been delivered by
the Company to you as the representatives (the "Representatives") of the
U.S. Underwriters. As used in this Agreement, "Effective Time" means
the date and the time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was declared effective by
the Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it became effective
under the Securities Act and any prospectus filed with the Commission by
the Company with the consent of the Representatives pursuant to Rule 424(a)
of the Rules and Regulations; "Registration Statement" means such
registration statement, as amended, at the Effective Time, including all
information contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations in accordance with
Section 5(a)
2
<PAGE>
hereof and deemed to be a part of the registration statement
as of the Effective Time pursuant to paragraph (b) of Rule 430A of the
Rules and Regulations; and "Prospectus" means such final prospectus, as
first filed with the Commission pursuant to paragraph (1) or (4) of Rule
424(b) of the Rules and Regulations. Neither the Commission nor the
securities authority of any jurisdiction has issued any order suspending
the effectiveness of the Registration Statement, preventing or suspending
the use of any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to permit the
effectiveness of the Registration Statement, or suspending the registration
or qualification of the Stock, nor has any of such authorities instituted
or threatened to institute any proceeding with respect to such an order.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the requirements
of the Securities Act and the Rules and Regulations and do not and will not,
as of the applicable Effective Date (as to the Registration Statement and
any amendment or supplement thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives or Lead Managers by or
on behalf of any Underwriter specifically for inclusion therein.
(c) The Company and its subsidiary have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are duly qualified to do
business and are in good standing as foreign corporations in each
jurisdiction in which their ownership or lease of property or the conduct of
their respective businesses requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the
general affairs, management, financial position, stockholders' equity,
results of operations, properties, assets, liabilities, future prospects or
business of the Company and its subsidiary, taken as a whole (herein, a
"Material Adverse Effect"), and have all power and authority necessary to
own or hold their respective properties and to conduct the businesses in
which they are engaged. The
3
<PAGE>
Company has complied in all respects with the applicable requirements under
Delaware law for changing its corporate name. To date, the Company's sole
subsidiary has not conducted any material business operations and is not a
"significant subsidiary," as such term is defined in Rule 405 of the Rules
and Regulations.
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; and except as otherwise set forth in the Prospectus, are owned
directly or indirectly by the Parent, free and clear of all liens,
encumbrances, equities or claims and there are no preemptive rights or
other rights to subscribe for or to purchase or any restriction upon the
voting or transfer of any Common Stock pursuant to the Company's articles
of incorporation, by-laws or other governing documents or any agreement or
other instrument to which the Company is a party or by which it may be
bound.
(e) The shares of Stock to be issued and sold by the Company to the
U.S. Underwriters hereunder and under the International Underwriting
Agreement have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein and under the
International Underwriting Agreement, will be duly and validly issued,
fully paid and non-assessable and the Stock will conform to the description
thereof contained in the Prospectus; and the issuance of the Stock is not
subject to preemptive or other similar rights that have not been waived.
(f) Upon payment for and delivery of the Common Stock pursuant to this
Agreement, the U.S. Underwriters, or other persons in whose names Common
Stock is registered, will acquire good and valid title to such Common
Stock, in each case free and clear of all liens, encumbrances, equities,
preemptive rights and other claims arising through the Company.
(g) The Company and the Parent have all requisite corporate power and
authority to execute and deliver this Agreement and to perform their
obligations hereunder. This Agreement has been duly authorized, executed
and delivered by the Company and the Parent.
(h) The execution, delivery and performance of this Agreement by the
Company and the Parent and the consummation of the transactions contemplated
hereby, including but not limited to (i) the Company's corporate name change
from Securicor Communications Inc. to Axiom Inc., (ii) the disposition of
4
<PAGE>
certain divisions and assets of the Company, and (iii) the merger
of Securicor Telesciences, Inc. with and into the Company
(collectively, the "Reorganization"), will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or the
Parent is a party or by which the Company or the Parent is bound or to which
any of the property or assets of the Company or the Parent is subject, nor
will such actions result in any violation of the provisions of the
certificate of incorporation, by-laws or other organizational documents of
the Company or the Parent or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or the Parent or any of their properties or assets; and except for
the registration of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under the United States Securities Exchange Act of 1934, as amended
(the "Exchange Act") and applicable state securities laws in connection with
the purchase and distribution of the U.S. Stock by the U.S. Underwriters, no
consent, approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement by the Company and the
Parent and the consummation of the transactions contemplated hereby.
(i) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company owned or to be owned by such person or the right (other than rights
which have been waived or satisfied) to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(j) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued
pursuant to employee benefit plans, qualified stock options plans or other
employee compensation plans or pursuant to outstanding options, rights or
warrants outstanding prior to the commencement of such six-month period.
5
<PAGE>
(k) Neither the Company nor subsidiary has sustained, since the date
of the latest audited financial statements included in the Prospectus, any
material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as
set forth or contemplated in the Prospectus; and, since such date, there
has not been any change in the capital stock or long-term debt of the
Company or its subsidiary or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity, results of operations, properties, assets,
liabilities, future prospects or business of the Company and its
subsidiary, taken as a whole, otherwise than as set forth or contemplated
in the Prospectus.
(l) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at
the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved.
(m) Arthur Andersen LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section 8(g) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations.
(n) Neither the Company nor its subsidiary owns any real property.
The Company and its subsidiary have good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiary; and all real and
personal property and buildings held under lease by the Company and its
subsidiary are held by them under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the Company
and its subsidiary.
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(o) The Company and its subsidiary carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their properties.
(p) The Company and its subsidiary own or possess
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations, service
mark registrations, copyrights and licenses necessary for the conduct of
their respective businesses and have not received any notice that the
conduct of their respective businesses will conflict with, and have not
received any notice of any claim of conflict with, any such rights of
others.
(q) There are no legal or governmental proceedings pending to which
the Company is a party or, to the Company's knowledge, of which any
property or assets of the Company is the subject which, if determined
adversely to the Company, might have a Material Adverse Effect; and to the
best of the Company's and the Parent's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by
others.
(r) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement.
(s) No relationship, direct or indirect, exists between or among the
Company on the one hand, and any director, nominee for election as a
director, officer, stockholder, customer or supplier of the Company on the
other hand, which is required to be described in the Prospectus which is
not so described.
(t) No labor disturbance by the employees of the Company exists or, to
the knowledge of the Company or the Parent, is imminent which might be
expected to have a Material Adverse Effect.
(u) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability; the Company has not incurred
and does not expect to
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incur liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(v) The Company and its subsidiary have filed all federal, state
and local income and franchise tax returns required to be filed through the
date hereof and have paid all taxes due thereon, and no tax deficiency has
been determined adversely to the Company or its subsidiary which has
had, nor do the Company or the Parent have any knowledge of any tax
deficiency which, if determined adversely to the Company, might have, a
Material Adverse Effect.
(w) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities other
than securities issued pursuant to employee benefit plans, qualified stock
or equity option plans or other employee compensation plans, (ii) incurred
any liability or obligation, direct or contingent, other than liabilities
and obligations which were incurred in the ordinary course of business,
(iii) entered into any transaction not in the ordinary course of business or
(iv) declared or paid any dividend on its capital stock.
(x) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for
its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its
assets is compared with existing assets at reasonable intervals.
(y) Neither the Company nor its subsidiary (i) is in violation
of its certificate of incorporation or by-laws, (ii) is in default in
any material respect, and no event has occurred which, with notice or lapse
of time or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any indenture,
mortgage, deed of
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trust, loan agreement or other agreement or instrument to which it is a
party or by which it is bound or to which any of its properties or assets
is subject and (iii) is not in violation in any material respect of any
law, ordinance, governmental rule, regulation or court decree to which it or
its property or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental authorization
or permit necessary to the ownership of its property or to the conduct of
its business.
(z) Neither the Company nor its subsidiary, nor, to the Company's
knowledge, any director, officer, agent, employee or other person associated
with or acting on behalf of the Company, has used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; has made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or has made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
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(aa) Neither the Company nor its subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act
of 1940 and the rules and regulations of the Commission thereunder.
(bb) Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Rules and Regulations) has taken or will take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the shares of the Stock.
2. Purchase of the U.S. Stock by the U.S. Underwriters. On the
basis of the representations and warranties contained in, and subject to the
terms and conditions of, this Agreement, the Company agrees to sell 2,080,00
shares of the Firm Stock to the several U.S. Underwriters and each of the
U.S. Underwriters, severally and not jointly, agrees to purchase the number
of shares of the Firm Stock set opposite that U.S. Underwriter's name in
Schedule l hereto. Each U.S. Underwriter shall be obligated to purchase from
the Company that number of shares of the Firm Stock which represents the same
proportion of the number of shares of the Firm Stock to be sold by the
Company as the number of shares of the Firm Stock set forth opposite the name
of such U.S. Underwriter in Schedule l represents of the total number of
shares of the Firm Stock to be purchased by all of the U.S. Underwriters
pursuant to this Agreement. The respective purchase obligations of the U.S.
Underwriters with respect to the Firm Stock shall be rounded among the U.S.
Underwriters to avoid fractional shares, as the Representatives may determine.
In addition, the Company grants to the U.S. Underwriters an option to
purchase up to 312,000 shares of Option Stock. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 4 hereof. Shares of Option Stock shall be
purchased severally for the account of the U.S. Underwriters in proportion to
the number of shares of Firm Stock set opposite the name of such U.S.
Underwriters in Schedule l hereto. The respective purchase obligations of each
U.S. Underwriter with respect to the Option Stock shall be adjusted by the
Representatives so that no U.S. Underwriter shall be obligated to purchase
Option Stock other than in l00 share amounts. The price of both the Firm Stock
and any Option Stock shall be $ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on the First Delivery Date or the Second Delivery Date (as
hereinafter defined),
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as the case may be, except upon payment for all the Stock to be
purchased on such Delivery Date as provided herein and under
the International Underwriting Agreement.
3. Offering of U.S. Stock by the U.S. Underwriters. Upon
authorization by the Representatives of the release of the
Firm Stock, the several U.S. Underwriters propose to offer
the Firm Stock for sale upon the terms and conditions set
forth in the Prospectus.
[It is understood that [ ] shares of the Firm Stock
will initially be reserved by the several U.S. Underwriters
and International Managers for offer and sale upon the terms
and conditions set forth in the Prospectus and in accordance
with the rules and regulations of the National Association
of Securities Dealers, Inc. to employees and persons having
business relationships with the Company who have heretofore
delivered to the Representatives offers or indications of
interest to purchase shares of Firm Stock in form
satisfactory to the Representatives, and that any allocation
of such Firm Stock among such persons will be made in
accordance with timely directions received by the
Representatives from the Company; provided, that under no
circumstances will the Representatives or any U.S.
Underwriter be liable to the Company or to any such person
for any action taken or omitted in good faith in connection
with such offering to employees and persons having business
relationships with the Company. It is further understood
that any shares of such Firm Stock which are not purchased
by such persons will be offered by the U.S. Underwriters to
the public upon the terms and conditions set forth in the
Prospectus.]
4. Delivery of and Payment for the U.S. Stock. Delivery of
and payment for the Firm Stock shall be made at the office
of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York,
NY 10112, at 10:00 A.M., New York City time, on the third
full business day following the date of this Agreement or at
such other date or place as shall be determined by agreement
between the Representatives and the Company. This date and
time are sometimes referred to as the First Delivery Date.
On the First Delivery Date, the Company shall deliver or
cause to be delivered certificates representing the Firm
Stock to the Representatives for the account of each U.S.
Underwriter against payment to or upon the order of the
Company of the purchase price by certified or official bank
check or checks payable in immediately available funds.
Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further
condition of the obligation of each U.S. Underwriter
hereunder. Upon delivery, the Firm Stock shall be
registered in such names and in such denominations as the
Representatives shall request in writing not less than two
full business days prior to the First Delivery Date. For
the purpose of expediting the checking and packaging of the
certificates for the Firm Stock, the Company shall make the
certificates representing the Firm Stock available for
11
<PAGE>
inspection by the Representatives in New York, New York, not
later than 2:00 P.M., New York City time, on the business
day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of
this Agreement the option granted in Section 2 may be
exercised in whole or in part, at any time and from time to
time, upon written notice being given to the Company by the
Representatives. Such notice shall set forth the aggregate
number of shares of Option Stock as to which the option is
being exercised, the names in which the shares of Option
Stock are to be registered, the denominations in which the
shares of Option Stock are to be issued and the date and
time, as determined by the Representatives, when the shares
of Option Stock are to be delivered; provided, however, that
this date and time shall not be earlier than the First
Delivery Date nor earlier than the second business day after
the date on which the option shall have been exercised nor
later than the fifth business day after the date on which
the option shall have been exercised. The date and time the
shares of Option Stock are delivered are sometimes referred
to as the "Second Delivery Date" and the First Delivery Date
and the Second Delivery Date are sometimes each referred to
as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made
at the place specified in the first sentence of the first
paragraph of this Section 4 (or at such other place as shall
be determined by agreement between the Representatives and
the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the
Company shall deliver or cause to be delivered the
certificates representing the Option Stock to the
Representatives for the account of each U.S. Underwriter
against payment to or upon the order of the Company of the
purchase price by certified or official bank check or checks
payable in immediately available funds. Time shall be of
the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the
obligation of each U.S. Underwriter hereunder. Upon
delivery, the Option Stock shall be registered in such names
and in such denominations as the Representatives shall
request in the aforesaid written notice. For the purpose of
expediting the checking and packaging of the certificates
for the Option Stock, the Company shall make the
certificates representing the Option Stock available for
inspection by the Representatives in New York, New York, not
later than 2:00 P.M., New York City time, on the business
day prior to the Second Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule
424(b) under the Securities Act not later than Commission's
close of business on the second business day following the
execution and delivery of this Agreement or, if
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<PAGE>
applicable, such earlier time as may be required by Rule
430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement
or to the Prospectus except as permitted herein; to advise
the Representatives, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement
has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to
furnish the Representatives with copies thereof; to advise
the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order
or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension
of the qualification of the Stock for offering or sale in
any jurisdiction, of the initiation or threatening of any
proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of
any Preliminary Prospectus or the Prospectus or suspending
any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and
to counsel for the U.S. Underwriters a signed copy of the
Registration Statement as originally filed with the
Commission, and each amendment thereto filed with the
Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representatives such number
of the following documents as the Representatives shall
reasonably request: (i) conformed copies of the
Registration Statement as originally filed with the
Commission and each amendment thereto, and (ii) each
Preliminary Prospectus, the Prospectus and any amended or
supplemented Prospectus; and, if the delivery of
the Prospectus is required at any time after the
Effective Time in connection with the offering or sale of
the Stock or any other securities relating thereto and if at
such time any events shall have occurred as a result of
which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to
comply with the Securities Act, to notify the
Representatives and, upon their request, to file such
document and to prepare and furnish without charge to each
U.S. Underwriter and to any dealer in securities as many
copies as the Representatives may from time to time
reasonably request of an amended or supplemented
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<PAGE>
Prospectus which will correct such statement or omission
or effect such compliance;
(d) To file promptly with the Commission any amendment to
the Registration Statement or the Prospectus or any
supplement to the Prospectus that may, in the judgment of
the Company or the Representatives, be required by the
Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to
the Registration Statement or supplement to the Prospectus
or any Prospectus pursuant to Rule 424 of the Rules and
Regulations, to furnish a copy thereof to the
Representatives and counsel for the U.S. Underwriters and
obtain the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date (but in
no event later than 15 months after the Effective Date), to
make generally available to the Company's security holders
and to deliver to the Representatives an earnings statement
of the Company (which need not be audited) complying with
Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule
158);
(g) For a period of five years following the Effective
Date, to furnish to the Representatives copies of all
materials furnished by the Company to its shareholders and
all public reports and all reports and financial statements
furnished by the Company to the principal national
securities exchange upon which the Common Stock may be
listed pursuant to requirements of or agreements with such
exchange or to the Commission pursuant to the Exchange Act
or any rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock
for offering and sale under the securities laws of such
jurisdictions as the Representatives may request and to
comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the
Stock;
(i) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, offer for sale,
sell or otherwise dispose of (or enter into any transaction
or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the
future of) any shares of Common Stock (other than the Stock
and shares issued pursuant to employee benefit plans,
14
<PAGE>
qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently
outstanding options, warrants or rights), or sell or grant
options, rights or warrants with respect to any shares of
Common Stock (other than the grant of options pursuant to
option plans existing on the date hereof), without the prior
written consent of Lehman Brothers Inc. on behalf of the
Representatives;
(j) Prior to the Effective Date, to apply for the inclusion
of the Stock for quotation on the Nasdaq National Market and
to use its best efforts to effect such quotation, subject
only to official notice of issuance, prior to the First
Delivery Date;
(k) To apply the net proceeds from the sale of the Stock
being sold by the Company as set forth in the Prospectus;
and
(l) To take such steps as shall be necessary to ensure that
the Company shall not become an "investment company" within
the meaning of such term under the Investment Company Act of
1940 and the rules and regulations of the Commission
thereunder.
6. Further Agreement of the Parent. The Parent agrees:
For a period of 180 days from the date of the
Prospectus, not to, and not to allow or cause Securicor
Communications LTD, the Company's direct parent,
or the Company to, directly or indirectly, offer for sale,
sell or otherwise dispose of (or enter into any transaction
or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the
future of) any shares of Common Stock, or sell or grant
options, rights or warrants with respect to any shares of
Common Stock, without the prior written consent of Lehman
Brothers Inc. on behalf of the Representatives;
15
<PAGE>
7. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable
in that connection; (b) the costs incident to the preparation, printing and
filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, all as provided in this Agreement; (d) the costs of producing and
distributing this Agreement, the International Underwriting Agreement, the
Agreement Between U.S. Underwriters and International Managers, any
Supplemental Agreement Among U.S. Underwriters, the Agreement Among
International Managers, the International Selling Agreement and any other
related documents in connection with the offering, purchase, sale and
delivery of the Stock; (e) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms
of sale of the Stock; (f) any applicable listing or other fees including the
fees for quotation of the Common Stock on the Nasdaq National Market; (g) the
fees and expenses of qualifying the Stock under the securities laws of the
several jurisdictions as provided in Section 5(h) and of preparing, printing
and distributing a Blue Sky Memorandum (including related fees and expenses
of counsel to the U.S. Underwriters); (h) all costs and expenses of the
U.S. Underwriters, including the fees and disbursements of counsel for the
U.S. Underwriters, incident to the offer and sale of Common Stock by the U.S.
Underwriters to employees and persons having business relationships with the
Company, as described in Section 3; and (i) all other costs and expenses
incident to the performance of the obligations of the Company and the Parent
under this Agreement; provided that, except as provided in this Section 7 and
in Section 12 the U.S. Underwriters shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer taxes on the
Stock which they may sell and the expenses of advertising any offering of the
Stock made by the U.S. Underwriters.
8. Conditions of U.S. Underwriters' Obligations. The respective
obligations of the U.S. Underwriters hereunder are subject to the accuracy,
when made and on each Delivery Date, of the representations and warranties of
the Company and the Parent contained herein, to the performance by the
Company and the Parent of their
16
<PAGE>
respective obligations hereunder, and to each of the following additional
terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 5(a); no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus or otherwise
shall have been complied with or otherwise adequately addressed to the
Commission's satisfaction.
(b) No U.S. Underwriter or International Manager shall have discovered
and disclosed to the Company on or prior to such Delivery Date that the
Registration Statement or the Prospectus or any amendment or supplement
thereto contains an untrue statement of a fact which, in the opinion of
Chadbourne & Parke LLP, counsel for the U.S. Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is material and
is required to be stated therein or is necessary to make the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the International
Underwriting Agreement, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this Agreement and the
transactions contemplated hereby, including but not limited to the
Reorganization,(i) the Company's corporate name change from Securicor
Communications Inc. to Axiom Inc., (ii) the disposition of certain divisions
and assets of Axiom Inc., and (iii) tthe merger of Securicor Telesciences,
Inc. with and into AxiomSecuricor Communications, Inc., (ii) the disposition
of certain divisions and assets of Securicor Communications, Inc. in
connection with such merger, and (iii) the Company's corporate name change,
shall be reasonably satisfactory in all material respects to counsel for the
U.S. Underwriters, and the Company and the Parent shall have furnished to
such counsel all documents and information that they may reasonably request
to enable them to pass upon such matters.
(d) Wolf, Block, Schorr & Solis-Cohen shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed to
the U.S. Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which its ownership or lease
of property or the conduct
17
<PAGE>
of its business requires such qualification, except where the failure to be
so qualified could not be expected to have a Material Adverse Effect, has all
power and authority necessary to own or hold its properties and conduct the
businesses in which it is engaged and has complied in all respects with the
applicable requirements under Delaware law for changing its corporate name;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
(including the shares of Stock being delivered on such Delivery Date) have
been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus;
(iii) Pursuant to the Company's certificate of incorporation
or by-laws there are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any shares of
the Stock nor is there, to such counsel's knowledge, or any agreement or other
instrument relating to the foregoing to which the Company is a party or by
which the Company may be bound;
(iv) All real property and buildings held under lease by the Company and
its subsidiary are held by them under valid, subsisting and enforceable
leases, except where the failure to be so held could not be expected to
have a Material Adverse Effect;
(v) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to which
the Company or its subsidiary is a party or of which any
property or assets of the Company or its subsidiary is the subject which, if
determined adversely to the Company or its subsidiary, might have a Material
Adverse Effect;
18
<PAGE>
and, to such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) The Registration Statement was declared effective under the
Securities Act as of the date and time specified in such opinion, the
Prospectus was filed with the Commission pursuant to the subparagraph of Rule
424(b) of the Rules and Regulations specified in such opinion on the date
specified therein and to such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement has been issued and, no
proceeding for that purpose is pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to such Delivery
Date (other than the financial statements and schedules and other financial
data contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Securities Act and the Rules and Regulations;
(viii) To such counsel's knowledge, there are no contracts or other
documents which are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act or by the Rules
and Regulations which have not been described or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations;
(ix) The Company has all requisite corporate power and authority to
execute and deliver this Agreement and the International Underwriting
Agreement and to perform its obligations hereunder and thereunder and this
Agreement and the International Underwriting Agreement have each been duly
authorized, executed and delivered by the Company;
(x) The issue and sale of the shares of Stock being delivered on such
Delivery Date by the Company and the compliance by the Company with all of
the provisions of this Agreement and the consummation of the transactions
contemplated hereby, including but not limited to the Reorganization, will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument listed as an
exhibit to the Registration
19
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Statement, nor will such actions result in any violation of the provisions of
the certificate of incorporation or by-laws of the Company or
any statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the Company or
any of its properties or assets; and, except for the
registration of the Stock under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be required
by the National Association of Securities Dealers, Inc. (the "NASD") or under
the Exchange Act and applicable state securities laws in connection with the
purchase and distribution of the Stock by the U.S. Underwriters and
International Managers, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement by the
Company or the Parent and the consummation of the transactions contemplated
hereby including, but not limited to the Reorganization; and
(xi) Except as described in the Prospectus, to such counsel's knowledge,
there are no contracts, agreements or understandings between the Company and
any person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered pursuant
to the Registration Statement or in any securities being registered pursuant
to any other registration statement filed by the Company under the Securities
Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, and the General Corporation Law Statute of the State of Delaware.
Such counsel shall also have furnished to the Representatives a written
statement, addressed to the U.S. Underwriters and dated such Delivery Date,
in form and substance satisfactory to the Representatives, to the effect that
(x) such counsel has acted as counsel to the Company in connection with the
Reorganization and the preparation of the Registration Statement, and (y)
based on the procedures set forth therein but without independent check or
verification, no facts have come to the attention of such counsel which lead
it to believe that the Registration Statement, as of the Effective Date,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The foregoing statement may
20
<PAGE>
be qualified by a statement to the effect that such counsel does not (i)
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus or (ii)
express any views to the financial statements and schedules and other
financial data contained therein.
(e) Herbert Smith shall have furnished to the Representatives its
written opinion, as United Kingdom counsel to the Parent, addressed to the
Representatives and the U.S. Underwriters and dated such Delivery Date, in
form and substance reasonably satisfactory to the Representatives, to the
effect that:
(i) The Parent is a company incorporated and existing with limited
liability under the laws of England.
(ii) The searches made at the Company's Registry in London on a recent
date revealed no order or resolution for the winding up of the Parent, no
notice of appointment of a receiver and no notice of an administration order.
Such opinion may state that such searches are not capable of revealing
whether or not a petition for an administration order or winding up order has
been presented and that notice of an administration or winding up order made
or resolution passed or receiver appointed may not be filed at the Companies
Registry immediately. Such opinion may further state that a director of the
Parent has certified to such counsel to the effect that to such director's
knowledge no such event had occurred at a recent date.
(iii) The Parent has all requisite corporate power to execute and
deliver this Agreement and perform its obligations hereunder.
(iv) The execution and delivery of this Agreement by the Parent and the
performance of its obligations hereunder have been duly authorized by
appropriate corporate action of the Parent.
(v) The choice of law and submission to jurisdiction clauses contained
in this Agreement would be recognized by the High Court in England such that
a final and conclusive money judgment of the courts of New York properly
obtained against the Parent pursuant to this Agreement otherwise than through
fraud or proceedings opposed to natural justice would be capable of being
enforced in England in
21
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sterling save where its enforcement would be contrary to public policy.
(vi) The execution, delivery and performance by the Parent of this
Agreement will not violate any provision of (i) any English law or regulation
applicable to companies generally or (ii) the Parent's Memorandum or Articles
of Association.
(vii) No authorizations, approvals, consents, licences, exemptions,
filings, registrations, notarizations or other requirements of or with United
Kingdom governmental, judicial or public bodies or authorities are required
in connection with the execution, delivery or performance of this Agreement.
Such opinion may further state that the issue of stock by the Company
pursuant to this Agreement for full consideration to persons unconnected
(directly or indirectly) with the Parent is covered by the Treasury general
consent 15th March 1988 pursuant to section 765 of the Income and Corporation
Taxes Act 1988.
(viii) No stamp, registration or similar taxes or charges are payable
in England in respect of this Agreement.
(ix) The Parent is the registered holder of the entire
issued share of capital of Securicor Communications Ltd.
(f) The Representatives shall have received from Chadbourne & Parke LLP,
counsel for the Underwriters, such opinion or opinions, dated such Delivery
Date, with respect to the issuance and sale of the Stock, the Registration
Statement, the Prospectus and other related matters as the Representatives
may reasonably require, and the Company and the Parent shall have furnished
to such counsel such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the Representatives
shall have received from Arthur Andersen LLP a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters and dated
the date hereof (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date
hereof (or, with respect to matters involving changes or developments since
the respective dates as
22
<PAGE>
of which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to underwriters
in connection with registered public offerings.
(h) With respect to the letter of Arthur Andersen LLP referred to in
the preceding paragraph and delivered to the Representatives concurrently
with the execution of this Agreement (the "initial letter"), the Company
shall have furnished to the Representatives a letter (the "bring-down
letter") of such accountants, addressed to the U.S. Underwriters and dated
such Delivery Date (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the qualification of accountants
under Rule 201 of Regulation S-X of the Commission, (ii) stating, as of the
date of the bring-down letter (or, with respect to matters involving changes
or developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five days
prior to the date of the bring-down letter), the conclusions and findings of
such firm with respect to the financial information and other matters covered
by the initial letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
(i) The Company and the Parent shall have furnished to the
Representatives certificates, dated such Delivery Date, of their respective
Chairman of the Board, President or a Vice President and their chief
financial officers stating that:
(i) The representations, warranties and agreements of the Company and
the Parent in Section 1 are true and correct as of such Delivery Date; the
Company has complied with all its agreements contained herein; and the
conditions set forth in Sections 8(a) and 8(i) have been fulfilled; and
(ii) They have carefully examined the Registration Statement and the
Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue statement of
a material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and (B) since the Effective Date no event has occurred which should have been
set forth in a supplement or amendment to the Registration Statement or the
Prospectus and is not so set forth.
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<PAGE>
(i) (i) Neither the Company nor its subsidiary
shall have sustained since the date of the latest audited
financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus or
(ii) since such date there shall not have been any change in the
capital stock or long-term debt of the Company or its subsidiary
or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial
position, stockholders' equity, results of operations,
properties, assets, liabilities, future prospects or business of
the Company and its subsidiary, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such
case described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering
or the delivery of the Stock being delivered on such Delivery
Date on the terms and in the manner contemplated in the
Prospectus.
(k) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following:
(i) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or in the
over-the-counter market, or trading in any securities of the
Company on any exchange or in the over-the-counter market, shall
have been suspended or minimum prices shall have been established
on any such exchange or such market by the Commission, by such
exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall
have been declared by United States Federal or state authorities,
(iii) the United States shall have become engaged in hostilities,
there shall have been an escalation in hostilities involving the
United States or there shall have been a declaration of a
national emergency or war by the United States or (iv) there
shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United
States shall be such), the effect of which, in any such case
described in clause (i), (ii), (iii) or (iv), is to make it, in
the judgment of a majority in interest of the several U.S.
Underwriters, impracticable or inadvisable to proceed with the
public offering or delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(l) The Nasdaq National Market shall have approved the
Stock for inclusion, subject only to official notice of
issuance and evidence of satisfactory distribution.
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<PAGE>
(m) The closing under the International Underwriting
Agreement shall have occurred concurrently with the Closing
hereunder on the Delivery Date.
(n) You shall have been furnished such additional
documents and certificates as you or counsel for the U.S.
Underwriters may reasonably request related to this Agreement
and the transactions contemplated hereby.
All opinions, letters, evidence and certificates mentioned
above or elsewhere in this Agreement shall be deemed to be
in compliance with the provisions hereof only if they are in
form and substance reasonably satisfactory to counsel for
the U.S. Underwriters.
9. Indemnification and Contribution.
(a) The Company and the Parent, severally and jointly,
shall indemnify and hold harmless each U.S. Underwriter, its
officers and employees and each person, if any, who controls any
U.S. Underwriter within the meaning of the Securities Act, from
and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not
limited to, any loss, claim, damage, liability or action relating
to purchases and sales of Stock), to which that U.S. Underwriter,
officer, employee or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or
supplement thereto or (B) in any blue sky application or other
document prepared or executed by the Company (or based upon any
written information furnished by the Company) specifically for
the purpose of qualifying any or all of the Stock under the
securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a
"Blue Sky Application"), (ii) the omission or alleged omission to
state in any Preliminary Prospectus, the Registration Statement
or the Prospectus, or in any amendment or supplement thereto, or
in any Blue Sky Application any material fact required to be
stated therein or necessary to make the statements therein not
misleading or (iii) any act or failure to act or any alleged act
or failure to act by any U.S. Underwriter in connection with, or
relating in any manner to, the Stock or the offering contemplated
hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based
upon matters covered by clause (i) or (ii) above (provided that
neither the Company nor the Parent shall be liable under this
clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss,
claim, damage, liability or action resulted directly from any
such acts or failures to act undertaken or omitted to be taken by
such U.S. Underwriter through its gross negligence or willful
misconduct), and shall reimburse each U.S. Underwriter and
25
<PAGE>
each such officer, employee or controlling person promptly upon
demand for any legal or other expenses reasonably incurred by
that U.S. Underwriter, officer, employee or controlling person in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that neither the
Company nor the Parent shall be liable in any such case to the
extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged
untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any
Blue Sky Application, in reliance upon and in conformity with
written information concerning such U.S. Underwriter furnished to
the Company through the Representatives by or on behalf of any
U.S. Underwriter specifically for inclusion therein. The
foregoing indemnity agreement is in addition to any liability
which the Company or the Parent may otherwise have to any U.S.
Underwriter or to any officer, employee or controlling person of
that U.S. Underwriter.
(b) Each U.S. Underwriter, severally and not jointly, shall
indemnify and hold harmless the Company, its officers and
employees, each of its directors (including any person who,
with his or her consent, is named in the Registration
Statement as about to become a director of the Company), and
each person, if any, who controls the Company within the
meaning of the Securities Act, from and against any loss,
claim, damage or liability, joint or several, or any action
in respect thereof, to which the Company or any such
director, officer or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or (B)
in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein
or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with
written information concerning such U.S. Underwriter
furnished to the Company through the Representatives by or
on behalf of that U.S. Underwriter specifically for
inclusion therein, and shall reimburse the Company and any
such director, officer or controlling person for any legal
or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection
with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as
such expenses are incurred. The foregoing indemnity
26
<PAGE>
agreement is in addition to any liability which any U.S.
Underwriter may otherwise have to the Company or any such
director, officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under
this Section 9 of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect
thereof is to be made against the indemnifying party under this
Section 9, notify the indemnifying party in writing of the claim
or the commencement of that action; provided, however, that the
failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 9 except
to the extent it has been materially prejudiced by such failure
and, provided further, that the failure to notify the
indemnifying party shall not relieve it from any liability which
it may have to an indemnified party otherwise than under this
Section 9. If any such claim or action shall be brought against
an indemnified party, and it shall notify the indemnifying party
thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the
indemnified party of its election to assume the defense of such
claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs
of investigation; provided, however, that the Representatives
shall have the right to employ counsel to represent jointly the
Representatives and those other U.S. Underwriters and their
respective officers, employees and controlling persons who may be
subject to liability arising out of any claim in respect of which
indemnity may be sought by the U.S. Underwriters against the
Company or the Parent under this Section 9 if, in the reasonable
judgment of the Representatives, it is advisable for the
Representatives and those U.S. Underwriters, officers, employees
and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company or the Parent. No
indemnifying party shall (i) without the prior written consent of
the indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim
or action) unless, such settlement, compromise or consent
includes an unconditional release of each indemnified party from
all liability arising out of such claim, action, suit or
proceeding, or (ii) be liable for any settlement of any such
action effected without its written consent (which consent shall
not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees
27
<PAGE>
to indemnify and hold harmless any indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 9
shall for any reason be unavailable to or insufficient to hold
harmless an indemnified party under Section 9(a) or 9(b) in
respect of any loss, claim, damage or liability, or any action in
respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the
Company and the Parent on the one hand and the Underwriters
on the other from the offering of the Stock or (ii) if the
allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company and the Parent on the
one hand and the U.S. Underwriters on the other with respect to
the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits
received by the Company and the Parent on the one hand and the
U.S. Underwriters on the other with respect to such offering
shall be deemed to be in the same proportion as the total net
proceeds from the U.S. Stock purchased under this Agreement
received by the Company and the Parent, on the one hand, and the
total underwriting discounts and commissions received by the U.S.
Underwriters with respect to the shares of the U.S. Stock
purchased under this Agreement, on the other hand, bear to the
total gross proceeds from the offering of the shares of the U.S.
Stock under this Agreement, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault
shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied
by the Company, the Parent or the U.S. Underwriters, the intent
of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement
or omission. The Company, the Parent and the U.S. Underwriters
agree that it would not be just and equitable if contributions
pursuant to this Section were to be determined by pro rata
allocation (even if the U.S. Underwriters were treated as one
entity for such purpose) or by any other method of allocation
which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section
shall be deemed to include, for purposes of this Section 9(d),
any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
Section 9(d), no U.S. Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at
which the
28
<PAGE>
Stock underwritten by it and distributed to the public was
offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise paid or become liable to pay
by reason of any untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
U.S. Underwriters' obligations to contribute as provided in this
Section 9(d) are several in proportion to their respective
underwriting obligations and not joint.
(e) The U.S. Underwriters severally confirm and the Company
acknowledges that the statements with respect to the public
offering of the Stock by the U.S. Underwriters set forth on
the cover page of, the legends concerning
stabilization and passive market making on
the inside front cover page of, and, except for the 14th and 15th
paragraphs thereunder, the text appearing under the caption
"Underwriting" in, the Prospectus are correct and constitute
the only information concerning such U.S. Underwriters
furnished in writing to the Company by or on behalf of the
U.S. Underwriters specifically for inclusion in the
Registration Statement and the Prospectus.
10. Defaulting U.S. Underwriters. If, on either Delivery
Date, any U.S. Underwriter defaults in the performance of
its obligations under this Agreement, the remaining
non-defaulting U.S. Underwriters shall be obligated to
purchase the Stock which the defaulting U.S. Underwriter
agreed but failed to purchase on such Delivery Date in the
respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining
non-defaulting U.S. Underwriter in Schedule 1 hereto bears
to the total number of shares of the Firm Stock set opposite
the names of all the remaining non-defaulting U.S.
Underwriters in Schedule 1 hereto; provided, however, that
the remaining non-defaulting U.S. Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date
if the total number of shares of the Stock which the
defaulting U.S. Underwriter or U.S. Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total
number of shares of the Stock to be purchased on such
Delivery Date, and any remaining non-defaulting U.S.
Underwriter shall not be obligated to purchase more than
110% of the number of shares of the Stock which it agreed to
purchase on such Delivery Date pursuant to the terms of
Section 2. If the foregoing maximums are exceeded, the
remaining non-defaulting U.S. Underwriters, or those other
underwriters satisfactory to the Representatives who so
agree, shall have the right, but shall not be obligated, to
purchase, in such proportion as may be agreed upon among
them, all the Stock to be purchased on such Delivery Date.
If the remaining U.S. Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase
the shares which the defaulting U.S. Underwriter or U.S.
Underwriters agreed
29
<PAGE>
but failed to purchase on such Delivery
Date, this Agreement (or, with respect to the Second
Delivery Date, the obligation of the U.S. Underwriters to
purchase, and of the Company to sell, the Option Stock)
shall terminate without liability on the part of any
non-defaulting U.S. Underwriter or the Company or the
Parent, except that the Company and the Parent will continue
to be liable for the payment of expenses to the extent set
forth in Sections 7 and 12. As used in this Agreement, the
term "U.S. Underwriter" includes, for all purposes of this
Agreement unless the context requires otherwise, any party
not listed in Schedule 1 hereto who, pursuant to this
Section 10, purchases Firm Stock which a defaulting U.S.
Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting U.S.
Underwriter of any liability it may have to the Company and
the Parent for damages caused by its default. If other
underwriters are obligated or agree to purchase the Stock of
a defaulting or withdrawing U.S. Underwriter, either the
Representatives or the Company may postpone the Delivery
Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company
or counsel for the U.S. Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other
document or arrangement.
11. Termination. The obligations of the U.S. Underwriters
hereunder may be terminated by the Representatives by notice
given to and received by the Company prior to delivery of
and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 8(i) or 8(j), shall have
occurred or if the U.S. Underwriters shall decline to
purchase the Stock for any reason permitted under this
Agreement.
12. Reimbursement of U.S. Underwriters' Expenses. If (a)
the Company shall fail to tender the Stock for delivery to
the U.S. Underwriters by reason of any failure, refusal or
inability on the part of the Company or the Parent to
perform any agreement on its part to be performed, or
because any other condition of the U.S. Underwriters'
obligations hereunder required to be fulfilled by the
Company or the Parent is not fulfilled, the Company and the
Parent, severally and jointly, will reimburse the U.S.
Underwriters for all reasonable out-of-pocket expenses
(including fees and disbursements of counsel) incurred by
the U.S. Underwriters in connection with this Agreement and
the proposed purchase of the Stock, and upon demand the
Company and the Parent, severally and jointly, shall pay the
full amount thereof to the Representatives. If this
Agreement is terminated pursuant to Section 10 by reason of
the default of one or more U.S. Underwriters, neither the
Company nor the Parent shall be obligated to reimburse any
defaulting U.S. Underwriter on account of those expenses.
13. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
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<PAGE>
(a) if to the U.S. Underwriters, shall be delivered or sent
by mail, telex or facsimile transmission to Lehman Brothers Inc.,
Three World Financial Center, New York, New York 10285,
Attention: Syndicate Department (Fax: 212-526-6588), with a
copy, in the case of any notice pursuant to Section 9(c), to the
Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY
10285;
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention:
Andrew P. Maunder (Fax: 609-778-0836); and
(c) if to the Parent, shall be delivered or sent by mail,
telex or facsimile transmission to Security Services plc,
[Address], Attention: [ ] (Fax: );
provided, however, that any notice to an U.S. Underwriter
pursuant to Section 9(c) shall be delivered or sent by mail,
telex or facsimile transmission to such U.S. Underwriter at its
address set forth in its acceptance telex to the Representatives,
which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests,
notices or agreements shall take effect at the time of receipt
thereof. The Company and the Parent shall be entitled to act and
rely upon any request, consent, notice or agreement given or made
on behalf of the U.S. Underwriters by Lehman Brothers Inc. on
behalf of the Representatives.
14. Persons Entitled to Benefit of Agreement. This
Agreement shall inure to the benefit of and be binding upon
the U.S. Underwriters, the Company, the Parent and their
respective representatives and successors. This Agreement
and the terms and provisions hereof are for the sole benefit
of only those persons, except that (A) the representations,
warranties, indemnities and agreements of the Company and
the Parent contained in this Agreement shall also be deemed
to be for the benefit of the person or persons, if any, who
control any U.S. Underwriter within the meaning of Section
15 of the Securities Act and (B) the indemnity agreement of
the U.S. Underwriters contained in Section 9(b) of this
Agreement shall be deemed to be for the benefit of directors
of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the
Company within the meaning of Section 15 of the Securities
Act. Nothing in this Agreement is intended or shall be
construed to give any person, other than the persons
referred to in this Section 13, any legal or equitable
right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
15. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Parent and the
U.S. Underwriters contained in this
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<PAGE>
Agreement or made by or on behalf on them, respectively, pursuant
to this Agreement, shall survive the delivery of and payment for
the Stock and shall remain in full force and effect, regardless
of any investigation made by or on behalf of any of them or any
person controlling any of them.
16. Definition of the Terms "Business Day" and
"Subsidiary". For purposes of this Agreement, (a) "business day"
means any day on which the New York Stock Exchange, Inc. is open
for trading and (b) "subsidiary" has the meaning set forth in
Rule 405 of the Rules and Regulations.
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York applicable
to agreements made and performed in the State of New York
without regard to the conflict of laws provision.
18. Consent to Jurisdiction. Each party irrevocably agrees
that any legal suit, action or proceeding arising out of or based
upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts
of the United States of America located in the City of New York
or the courts of the State of New York in each case located in
the Borough of Manhattan in the City of New York (collectively,
the "Specified Courts"), and irrevocably submits to the exclusive
jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. The parties
further agree that service of any process, summons, notice or
document by mail to such party's address set forth above shall be
effective service of process for any lawsuit, action or other
proceeding brought in any such court. The parties hereby
irrevocably and unconditionally waive any objection to the laying
of venue of any lawsuit, action or other proceeding in the
Specified Courts, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such
court that any such lawsuit, action or other proceeding brought
in any such court has been brought in an inconvenient forum.
Each party not located in the United States hereby irrevocably
appoints CT Corporation System, which currently maintains a New
York City office at 1633 Broadway, New York, New York 10019,
United States of America, as its agent to receive service of
process or other legal summons for purposes of any such action or
proceeding that may be instituted in any state or federal court
in the City and State of New York.
19. Waiver of Immunity. With respect to any Related
Proceeding, each party irrevocably waives, to the fullest
extent permitted by applicable law, all immunity (whether on
the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after
judgment) and execution to which it might otherwise be
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entitled in the Specified Courts, and with respect to any
Related Judgment, each party waives any such immunity in the
Specified Courts or any other court of competent
jurisdiction, and will not raise or claim or cause to be
pleaded any such immunity at or in respect of any such
Related Proceeding or Related Judgment, including, without
limitation, any immunity pursuant to the United States
Foreign Sovereign Immunities Act of 1976, as amended.
20. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one
counterpart, the executed counterparts shall each be deemed
to be an original but all such counterparts shall together
constitute one and the same instrument.
21. Headings. The headings herein are inserted for
convenience of reference only and are not intended to be
part of, or to affect the meaning or interpretation of, this
Agreement.
If the foregoing correctly sets forth the agreement among
the Company, the Parent and the U.S. Underwriters, please
indicate your acceptance in the space provided for that purpose
below.
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Very truly yours,
AXIOM INC.
By:
-----------------------------
Name:
Title:
SECURITY SERVICES PLC
By:
---------------------------
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
J.P. MORGAN SECURITIES INC.
For themselves and as Representatives of the several
U.S. Underwriters named in Schedule 1 hereto
By: LEHMAN BROTHERS INC.
By:--------------------------------------
Authorized Representative
34
<PAGE>
SCHEDULE 1
U.S. Underwriters Number of
Shares
Lehman Brothers....................................
J.P. Morgan Securities.............................
Total..................................
35
<PAGE>
Exhibit 1.2
Shares
___________
Axiom Inc.
Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
July _____, 1997
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
J.P. MORGAN SECURITIES LTD.
As Lead Managers of the several
International Managers named in Schedule 1,
c/o Lehman Brothers International (Europe)
1 Broadgate, 4th Floor
London EC2M 7HA
England
Dear Sirs:
Axiom Inc., a Delaware corporation (the "Company") and an
indirect wholly-owned subsidiary of Security Services plc, a
corporation organized under the laws of England and Wales
(the "Parent"), proposes to sell__________shares (the "Firm
Stock") of the Company's Common Stock, par value $0.01 per
share (the "Common Stock"), to the several International
Managers named in Schedule 1 hereto (together, the
"International Managers"). In addition, the Company
proposes to grant to the International Managers options to
purchase up to an additional__________shares of the Common
Stock on the terms and for the purposes set forth in Section
2 (the "Option Stock"). The Firm Stock and the Option
Stock, if purchased, are hereinafter collectively called the
"International Stock." This is to confirm the agreement
concerning the purchase of the International Stock from the
Company by the International Managers.
It is understood by all parties that the Company and the
Parent are concurrently entering into an agreement dated the
date hereof (the "U.S. Underwriting Agreement") providing
for the sale by the Company of an aggregate of ____ shares
of the Common Stock (including the over-allotments option
thereunder, the "U.S. Stock") through arrangements with
certain Underwriters in the United States and Canada (the
"U.S. Underwriters"), for whom Lehman Brothers Inc. and J.P.
Morgan Securities Inc. are acting as representatives (the
"Representatives"). Except as used in Sections 2, 3, 4, 10
and 11 herein, and except as the context may otherwise
require, references herein to the
<PAGE>
"Stock" shall include all the Common Stock that may be sold
pursuant to either this Agreement or the U.S. Underwriting
Agreement. The International Managers and the U.S.
Underwriters simultaneously are entering into an agreement
among the U.S. and international underwriting syndicates
(the "Agreement Between U.S. Underwriters and International
Managers") which provides for, among other things, the
transfer of the Stock between the two syndicates. Two forms
of prospectus are to be used in connection with the offering
and sale of the Stock contemplated by the foregoing, one
relating to the U.S. Stock and one relating to the
International Stock. The international form of prospectus
will be identical to the U.S. prospectus except for certain
substitute pages as included in the registration statement
and amendments thereto referred to below. References herein
to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the
international and U.S. versions thereof. The U.S.
Underwriters and the International Managers are collectively
referred to herein as the "Underwriters."
1. Representations, Warranties and Agreements of the
Company and the Parent. The Company and the Parent
represent, warrant and agree, severally and jointly, that:
(a) A registration statement on Form S-1 (File No.
333-25439), including all amendments thereto, with respect
to the Stock has (i) been prepared by the Company in
conformity with the requirements of the United States
Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations (the "Rules and Regulations")
of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the
Commission under the Securities Act and (iii) become
effective under the Securities Act. Copies of such
registration statement and of the amendments thereto have
been delivered by the Company to you as the lead managers
(the "Lead Managers") of the U.S. Underwriters. As used in
this Agreement, "Effective Time" means the date and the time
as of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date
of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or
amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission
by the Company with the consent of the Lead Managers
pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement,
as amended, at the Effective Time, including all information
contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 5(a) hereof and deemed to be a part
of the
2
<PAGE>
registration statement as of the Effective Time pursuant to
paragraph (b) of Rule 430A of the Rules and Regulations; and
"Prospectus" means such final prospectus, as first filed
with the Commission pursuant to paragraph (1) or (4) of Rule
424(b) of the Rules and Regulations. Neither the Commission
nor the securities authority of any jurisdiction has issued
any order suspending the effectiveness of the Registration
Statement, preventing or suspending the use of any
Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing
to permit the effectiveness of the Registration Statement,
or suspending the registration or qualification of the
Stock, nor has any of such authorities instituted or
threatened to institute any proceeding with respect to such
an order.
(b) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective or are
filed with the Commission, as the case may be, conform in all
respects to the requirements of the Securities Act and the Rules
and Regulations and do not and will not, as of the applicable
Effective Date (as to the Registration Statement and any amendment
or supplement thereto) and as of the applicable filing date (as to
the Prospectus and any amendment or supplement thereto) contain an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading; provided that no representation
or warranty is made as to information contained in or omitted from
the Registration Statement or the Prospectus in reliance upon and
in conformity with written information furnished to the Company
through the Lead Managers or the Representatives by or on behalf of
any Underwriter specifically for inclusion therein.
(c) The Company and its subsidiary have been duly
incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction in which
their ownership or lease of property or the conduct of their
respective businesses requires such qualification, except where the
failure to so qualify would not have a material adverse effect on
the general affairs, management, financial position, stockholders'
equity, results of operations, properties, assets, liabilities,
future prospects or business of the Company and its subsidiary,
taken as a whole (herein, a "Material Adverse Effect"), and have
all power and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are engaged.
The Company has complied in all respects with the applicable
3
<PAGE>
requirements under Delaware law for changing its corporate name.
To date, the Company's sole subsidiary has not conducted any
material business operations and is not a "significant subsidiary,"
as such term is defined in Rule 405 of the Rules and Regulations.
(d) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus; and except as otherwise set forth in the
Prospectus, are owned directly or indirectly by the Parent,
free and clear of all liens, encumbrances, equities or
claims and there are no preemptive rights or other rights to
subscribe for or to purchase or any restriction upon the
voting or transfer of any Common Stock pursuant to the
Company's articles of incorporation, by-laws or other
governing documents or any agreement or other instrument to
which the Company is a party or by which it may be bound.
(e) The shares of Stock to be issued and sold by the
Company to the International Managers hereunder and under
the U.S. Underwriting Agreement have been duly and validly
authorized and, when issued and delivered against payment
therefor as provided herein and under the U.S. Underwriting
Agreement, will be duly and validly issued, fully paid and
non-assessable and the Stock will conform to the description
thereof contained in the Prospectus; and the issuance of the
Stock is not subject to preemptive or other similar rights
that have not been waived.
(f) Upon payment for and delivery of the Common Stock
pursuant to this Agreement, the International Managers, or
other persons in whose names Common Stock is registered,
will acquire good and valid title to such Common Stock, in
each case free and clear of all liens, encumbrances,
equities, preemptive rights and other claims arising through
the Company.
(g) The Company and the Parent have all requisite corporate
power and authority to execute and deliver this Agreement and to
perform their obligations hereunder. This Agreement has been duly
authorized, executed and delivered by the Company and the Parent.
(h) The execution, delivery and performance of this
Agreement by the Company and the Parent and the consummation of the
transactions contemplated hereby, including but not limited to (i)
the Company's corporate name change from Securicor Communications
Inc. to Axiom Inc., (ii) the disposition of certain divisions and
assets of the CompanyAxiom Inc, and (iii) the merger of Securicor
Telesciences,
4
<PAGE>
Inc. with and into AxiomSecuricor the Company (collectively,
the "Reorganization")Communications,Inc., (ii) the
disposition of certain divisions and assets of Securicor
Communications, Inc. in connection with such merger, and
(iii) the Company's corporate name change, will not conflict
with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or the
Parent is a party or by which the Company or the Parent is
bound or to which any of the property or assets of the
Company or the Parent is subject, nor will such actions
result in any violation of the provisions of the certificate
of incorporation, by-laws or other organizational documents
of the Company or the Parent or any statute or any order,
rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or the Parent or
any of their properties or assets; and except for the
registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the United States
Securities Exchange Act of 1934, as amended (the "Exchange
Act") and applicable state securities laws in connection
with the purchase and distribution of the U.S. Stock by the
U.S. Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company
and the Parent and the consummation of the transactions
contemplated hereby.
(i) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to
file a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such
person or the right (other than rights which have been waived or
satisfied) to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in
any securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act.
(j) Except as described in the Prospectus, the Company has
not sold or issued any shares of Common Stock during the six-month
period preceding the date of the Prospectus, including any sales
pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee
benefit plans, qualified stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or
warrants outstanding prior to the commencement of such six-month
period.
(k) Neither the Company nor its subsidiary has sustained,
since the date of the latest audited financial statements included
in the Prospectus, any material loss or interference with its
business from fire, explosion, flood or other calamity,
5
<PAGE>
whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as
set forth or contemplated in the Prospectus; and, since such date,
there has not been any change in the capital stock or long-term
debt of the Company or its subsidiary or any material adverse
change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial
position, stockholders' equity, results of operations, properties,
assets, liabilities, future prospects or business of the Company
and its subsidiary, taken as a whole, otherwise than as set forth
or contemplated in the Prospectus.
(l) The financial statements (including the related notes
and supporting schedules) filed as part of the Registration
Statement or included in the Prospectus present fairly the
financial condition and results of operations of the entities
purported to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved.
(m) Arthur Andersen LLP, who have certified certain
financial statements of the Company, whose report appears in the
Prospectus and who have delivered the initial letter referred to in
Section 8(g) hereof, are independent public accountants as required
by the Securities Act and the Rules and Regulations.
(n) Neither the Company nor its subsidiary owns any real
property. The Company and its subsidiary have good and marketable
title to all personal property owned by them, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and
its subsidiary; and all real and personal property and buildings
held under lease by the Company and its subsidiary are held by them
under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the
Company and its subsidiary.
(o) The Company and its subsidiary carry, or are covered by,
insurance in such amounts and covering such risks as is adequate
for the conduct of their respective businesses and the value of
their properties.
(p) The Company and its subsidiary own or possess adequate
rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and
licenses
6
<PAGE>
necessary for the conduct of their respective businesses and have
not received any notice that the conduct of their respective
businesses will conflict with, and have not received any notice of
any claim of conflict with, any such rights of others.
(q) There are no legal or governmental proceedings pending
to which the Company is a party or, to the Company's knowledge, of
which any property or assets of the Company is the subject which,
if determined adversely to the Company, might have a Material
Adverse Effect; and to the Company's and the Parent's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(r) There are no contracts or other documents which are
required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Securities Act
or by the Rules and Regulations which have not been
described in the Prospectus or filed as exhibits to the
Registration Statement.
(s) No relationship, direct or indirect, exists between or
among the Company on the one hand, and any director, nominee
for election as a director, officer, stockholder, customer
or supplier of the Company on the other hand, which is
required to be described in the Prospectus which is not so
described.
(t) No labor disturbance by the employees of the Company
exists or, to the knowledge of the Company or the Parent, is
imminent which might be expected to have a Material Adverse Effect.
(u) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would
have any liability; the Company has not incurred and does not
expect to incur liability under (i) Title IV of ERISA with respect
to termination of, or withdrawal from, any "pension plan" or (ii)
Section 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure
to act, which would cause the loss of such qualification.
7
<PAGE>
(v) The Company and its subsidiary have filed all federal,
state and local income and franchise tax returns required to be
filed through the date hereof and have paid all taxes due thereon,
and no tax deficiency has been determined adversely to the Company
or its subsidiary which has had, nor do the Company or the Parent
have any knowledge of any tax deficiency which, if determined
adversely to the Company, might have, a Material Adverse Effect.
(w) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or
granted any securities other than securities issued pursuant to
employee benefit plans, qualified stock or equity option plans or
other employee compensation plans, (ii) incurred any liability or
obligation, direct or contingent, other than liabilities and
obligations which were incurred in the ordinary course of business,
(iii) entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.
(x) The Company (i) makes and keeps accurate books and
records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C)
access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for
its assets is compared with existing assets at reasonable intervals.
(y) Neither the Company nor its subsidiary (i) is in
violation of its certificate of incorporation or by-laws, (ii) is
in default in any material respect, and no event has occurred
which, with notice or lapse of time or both, would constitute such
a default, in the due performance or observance of any term,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which it
is a party or by which it is bound or to which any of its
properties or assets is subject and (iii) is in violation in any
material respect of any law, ordinance, governmental rule,
regulation or court decree to which it or its property or assets
may be subject or has failed to obtain any material license,
permit, certificate, franchise or other governmental authorization
or permit necessary to the ownership of its property or to the
conduct of its business.
(z) Neither the Company nor its subsidiary, nor, to the
Company's knowledge, any director, officer, agent, employee or
other person associated with
8
<PAGE>
or acting on behalf of the Company, has used any corporate funds
for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; has made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or
is in violation of any provision of the Foreign Corrupt Practices
Act of 1977; or has made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(aa) Neither the Company nor its subsidiary is an "investment
company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the Commission
thereunder.
(bb) Neither the Company nor any of its officers, directors,
or affiliates (as defined in the Rules and Regulations) has taken
or will take, directly or indirectly, any action which is designed
to or which has constituted or which might reasonably be expected
to cause or result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or
resale of the shares of the Stock.
2. Purchase of the International Stock by the International
Managers. On the basis of the representations and warranties
contained in, and subject to the terms and conditions of, this
Agreement, the Company agrees to sell [____________] shares of the
Firm Stock to the several International Managers and each of the
International Managers, severally and not jointly, agrees to
purchase the number of shares of the Firm Stock set opposite that
International Manager's name in Schedule l hereto. Each
International Manager shall be obligated to purchase from the
Company that number of shares of the Firm Stock which represents
the same proportion of the number of shares of the Firm Stock to be
sold by the Company as the number of shares of the Firm Stock set
forth opposite the name of such International Manager in Schedule l
represents of the total number of shares of the Firm Stock to be
purchased by all of the International Managers pursuant to this
Agreement. The respective purchase obligations of the
International Managers with respect to the Firm Stock shall be
rounded among the International Managers to avoid fractional
shares, as the Lead Managers may determine.
In addition, the Company grants to the International Managers an
option to purchase up to [___________] shares of Option Stock. Such
option is granted solely for the purpose of covering
over-allotments in the sale of Firm Stock and is exercisable as
provided in Section 4 hereof. Shares of Option Stock shall be
purchased severally for the account of the International Managers
in proportion to the number of shares of Firm Stock set opposite
the name of such International Managers in Schedule l hereto. The
respective purchase obligations of each International Manager with
respect to the Option
9
<PAGE>
Stock shall be adjusted by the Lead Managers so that no
International Manager shall be obligated to purchase Option Stock
other than in l00 share amounts. The price of both the Firm Stock
and any Option Stock shall be $__________ per share.
The Company shall not be obligated to deliver any of the Stock
to be delivered on the First Delivery Date or the Second Delivery
Date (as hereinafter defined), as the case may be, except upon
payment for all the Stock to be purchased on such Delivery Date as
provided herein and under the U.S. Underwriting Agreement.
3. Offering of International Stock by the International
Managers. Upon authorization by the Lead Managers of the release
of the Firm Stock, the several International Managers propose to
offer the Firm Stock for sale upon the terms and conditions set
forth in the Prospectus.
It is understood that [__________] shares of the Firm Stock will
initially be reserved by the several International Managers and
U.S. Underwriters for offer and sale upon the terms and conditions
set forth in the Prospectus and in accordance with the rules and
regulations of the National Association of Securities Dealers, Inc.
to employees and persons having business relationships with the
Company who have heretofore delivered to the Lead Managers offers
or indications of interest to purchase shares of Firm Stock in form
satisfactory to the Lead Managers, and that any allocation of such
Firm Stock among such persons will be made in accordance with
timely directions received by the Lead Managers from the Company;
provided, that under no circumstances will the Lead Managers or any
International Manager be liable to the Company or to any such
person for any action taken or omitted in good faith in connection
with such offering to employees and persons having business
relationships with the Company. It is further understood that any
shares of such Firm Stock which are not purchased by such persons
will be offered by the International Managers to the public upon
the terms and conditions set forth in the Prospectus.
Each International Manager agrees that, except to the extent
permitted by the Agreement Between International Managers and U.S.
Underwriters, it will not offer or sell any of the Stock inside of
the United States and Canada.
4. Delivery of and Payment for the International Stock.
Delivery of and payment for the Firm Stock shall be made at the
office of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York,
NY 10112, at 10:00 A.M., New York City time, on the third full
business day following the date of this Agreement or at such other
date or place as shall be determined by agreement between the Lead
Managers and the Company. This date and time are sometimes
referred to as the First Delivery Date. On the First Delivery
Date, the Company shall deliver or cause to be delivered
certificates representing the Firm
10
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Stock to the Lead Managers for the account of each International
Manager against payment to or upon the order of the Company of the
purchase price by certified or official bank check or checks
payable in immediately available funds. Time shall be of the
essence, and delivery at the time and place specified pursuant to
this Agreement is a further condition of the obligation of each
International Manager hereunder. Upon delivery, the Firm Stock
shall be registered in such names and in such denominations as the
Lead Managers shall request in writing not less than two full
business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the
Firm Stock, the Company shall make the certificates representing
the Firm Stock available for inspection by the Lead Managers in New
York, New York, not later than 2:00 P.M., New York City time, on
the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of
this Agreement the option granted in Section 2 may be exercised in
whole or in part, at any time and from time to time, upon written
notice being given to the Company by the Lead Managers. Such
notice shall set forth the aggregate number of shares of Option
Stock as to which the option is being exercised, the names in which
the shares of Option Stock are to be registered, the denominations
in which the shares of Option Stock are to be issued and the date
and time, as determined by the Lead Managers, when the shares of
Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor
earlier than the second business day after the date on which the
option shall have been exercised nor later than the fifth business
day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are
sometimes referred to as the "Second Delivery Date" and the First
Delivery Date and the Second Delivery Date are sometimes each
referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made
at the place specified in the first sentence of the first paragraph
of this Section 4 (or at such other place as shall be determined by
agreement between the Lead Managers and the Company) at 10:00 A.M.,
New York City time, on the Second Delivery Date. On the Second
Delivery Date, the Company shall deliver or cause to be delivered
the certificates representing the Option Stock to the Lead Managers
for the account of each International Manager against payment to or
upon the order of the Company of the purchase price by certified or
official bank check or checks payable in immediately available
funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition
of the obligation of each International Manager hereunder. Upon
delivery, the Option Stock shall be registered in such names and in
such denominations as the Lead Managers shall request in the
aforesaid written notice. For the purpose of
11
<PAGE>
expediting the checking and packaging of the certificates for the
Option Stock, the Company shall make the certificates representing
the Option Stock available for inspection by the Lead Managers in
New York, New York, not later than 2:00 P.M., New York City time,
on the business day prior to the Second Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the Lead
Managers and to file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than Commission's close of business on
the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Securities Act; to make no
further amendment or any supplement to the Registration Statement
or to the Prospectus except as permitted herein; to advise the Lead
Managers, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or
becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Lead Managers
with copies thereof; to advise the Lead Managers, promptly after it
receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding
for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts
to obtain its withdrawal;
(b) To furnish promptly to each of the Lead Managers and to
counsel for the International Managers a signed copy of the
Registration Statement as originally filed with the Commission, and
each amendment thereto filed with the Commission, including all
consents and exhibits filed therewith;
(c) To deliver promptly to the Lead Managers such number of
the following documents as the Lead Managers shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto,
and (ii) each Preliminary Prospectus, the Prospectus and any
amended or supplemented Prospectus; and, if the delivery of the
Prospectus is required at any time after the Effective Time in
connection with the offering or sale of the Stock or any other
securities relating thereto and if at such time any events shall
have occurred as a result of which the Prospectus as
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<PAGE>
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary to
amend or supplement the Prospectus in order to comply with the
Securities Act, to notify the Lead Managers and, upon their
request, to file such document and to prepare and furnish without
charge to each International Manager and to any dealer in
securities as many copies as the Lead Managers may from time to
time reasonably request of an amended or supplemented Prospectus
which will correct such statement or omission or effect such
compliance;
(d) To file promptly with the Commission any amendment to
the Registration Statement or the Prospectus or any supplement to
the Prospectus that may, in the judgment of the Company or the Lead
Managers, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Lead Managers and counsel for the
International Managers and obtain the consent of the Lead Managers
to the filing;
(f) As soon as practicable after the Effective Date (but in
no event later than 15 months after the Effective Date), to make
generally available to the Company's security holders and to
deliver to the Lead Managers an earnings statement of the Company
(which need not be audited) complying with Section 11(a) of the
Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date,
to furnish to the Lead Managers copies of all materials furnished
by the Company to its shareholders and all public reports and all
reports and financial statements furnished by the Company to the
principal national securities exchange upon which the Common Stock
may be listed pursuant to requirements of or agreements with such
exchange or to the Commission pursuant to the Exchange Act or any
rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Lead Managers may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions
as the Lead Managers may request and to comply with such laws so as
to permit the continuance of sales and dealings therein
13
<PAGE>
in such jurisdictions for as long as may be necessary to complete
the distribution of the Stock;
(i) For a period of 180 days from the date of the
Prospectus, not to, directly or indirectly, offer for sale, sell or
otherwise dispose of (or enter into any transaction or device which
is designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any shares of Common
Stock (other than the Stock and shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee
compensation plans existing on the date hereof or pursuant to
currently outstanding options, warrants or rights), or sell or
grant options, rights or warrants with respect to any shares of
Common Stock (other than the grant of options pursuant to option
plans existing on the date hereof), without the prior written
consent of Lehman Brothers International (Europe) on behalf of the
Lead Managers;
(j) Prior to the Effective Date, to apply for the inclusion
of the Stock for quotation on the Nasdaq National Market and to use
its best efforts to effect such quotation, subject only to official
notice of issuance, prior to the First Delivery Date;
(k) To apply the net proceeds from the sale of the Stock
being sold by the Company as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that
the Company shall not become an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and
the rules and regulations of the Commission thereunder.
6. Further Agreement of the Parent. The Parent agrees:
For a period of 180 days from the date of the Prospectus,
not to, and not to allow or cause Securicor Communications LTD, the
Company's direct parent, or the Company to directly or indirectly,
offer for sale, sell or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the
future of) any shares of Common Stock, or sell or grant options,
rights or warrants with respect to any shares of Common Stock,
without the prior written consent of Lehman Brothers International
(Europe) on behalf of the Lead Managers.
7. Expenses. The Company agrees to pay (a) the costs incident
to the authorization, issuance, sale and delivery of the Stock and
any taxes payable in that
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<PAGE>
connection; (b) the costs incident to the preparation, printing and
filing under the Securities Act of the Registration Statement and
any amendments and exhibits thereto; (c) the costs of distributing
the Registration Statement as originally filed and each amendment
thereto and any post-effective amendments thereof (including, in
each case, exhibits), any Preliminary Prospectus, the Prospectus
and any amendment or supplement to the Prospectus, all as provided
in this Agreement; (d) the costs of producing and distributing this
Agreement, the U.S. Underwriting Agreement, the Agreement Between
International Managers and International Managers, any Supplemental
Agreement Among International Managers, the Agreement Among
International Managers, the International Selling Agreement and any
other related documents in connection with the offering, purchase,
sale and delivery of the Stock; (e) the filing fees incident to
securing any required review by the National Association of
Securities Dealers, Inc. of the terms of sale of the Stock; (f) any
applicable listing or other fees including the fees for quotation
of the Common Stock on the Nasdaq National Market; (g) the fees and
expenses of qualifying the Stock under the securities laws of the
several jurisdictions as provided in Section 5(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related
fees and expenses of counsel to the International Managers); (h)
all costs and expenses of the International Managers, including the
fees and disbursements of counsel for the International Managers,
incident to the offer and sale of Common Stock by the International
Managers to employees and persons having business relationships
with the Company, as described in Section 3; and (i) all other
costs and expenses incident to the performance of the obligations
of the Company and the Parent under this Agreement; provided that,
except as provided in this Section 7 and in Section 12 the
International Managers shall pay their own costs and expenses,
including the costs and expenses of their counsel, any transfer
taxes on the Stock which they may sell and the expenses of
advertising any offering of the Stock made by the International
Managers.
8. Conditions of International Managers' Obligations. The
respective obligations of the International Managers hereunder are
subject to the accuracy, when made and on each Delivery Date, of
the representations and warranties of the Company and the Parent
contained herein, to the performance by the Company and the Parent
of their respective obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 5(a); no stop order
suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission;
and any request of the Commission for inclusion of additional
information in the Registration Statement or the Prospectus or
otherwise shall
15
<PAGE>
have been complied with or otherwise adequately addressed to the
Commission's satisfaction.
(b) No International Manager or U.S. Underwriter shall have
discovered and disclosed to the Company on or prior to such
Delivery Date that the Registration Statement or the Prospectus or
any amendment or supplement thereto contains an untrue statement of
a fact which, in the opinion of Chadbourne & Parke LLP, counsel for
the International Managers, is material or omits to state a fact
which, in the opinion of such counsel, is material and is required
to be stated therein or is necessary to make the statements therein
not misleading.
(c) All corporate proceedings and other legal matters
incident to the authorization, form and validity of this Agreement,
the U.S. Underwriting Agreement, the Stock, the Registration
Statement and the Prospectus, and all other legal matters relating
to this Agreement and the transactions contemplated hereby,
including but not limited to the Reorganization, shall be reasonably
satisfactory in all material respects to counsel for the
International Managers, and the Company and the Parent shall have
furnished to such counsel all documents and information that they
may reasonably request to enable them to pass upon such matters.
(d) Wolf, Block, Schorr & Solis-Cohen shall have furnished
to the Lead Managers its written opinion, as counsel to the
Company, addressed to the International Managers and dated such
Delivery Date, in form and substance reasonably satisfactory to the
Lead Managers, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction
in which its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to
be so qualified could not be expected to have a Material Adverse
Effect, has all power and authority necessary to own or hold its
properties and conduct the businesses in which it is engaged and
has complied in all respects with the applicable requirements under
Delaware law for changing its corporate name;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock being delivered
on such Delivery Date) have been duly and validly authorized and
issued, are fully paid and non-
16
<PAGE>
assessable and conform to the description thereof contained in the
Prospectus;
(iii) Pursuant to the Company's certificate of
incorporation or by-laws there are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the voting
or transfer of, any shares of the Stock, nor is there, to such
counsel's knowledge, any agreement or other instrument relating to
the foregoing to which the Company is a party or by which the
Company may be bound;
(iv) All real property and buildings held under lease by the
Company and its subsidiary are held by them under valid, subsisting
and enforceable leases, except where the failure to be so held
could not be expected to have a Material Adverse Effect with such
exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the
Company and its subsidiary;
(v) To such counsel's knowledge and other than as set forth
in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or its subsidiary is a party or of
which any property or assets of the Company or its subsidiary is
the subject which, if determined adversely to the Company or its
subsidiary, might have a Material Adverse Effect; and, to such
counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion, the Prospectus was filed with the Commission pursuant to
the subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and to such
counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and, no proceeding for
that purpose is pending or threatened by the Commission;
(vii)The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the Company
prior to such Delivery Date (other than the financial statements
and schedules and other financial data contained therein, as to
which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities Act
and the Rules and Regulations;
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<PAGE>
(viii) To such counsel's knowledge, there are no contracts
or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by
the Securities Act or by the Rules and Regulations which have not
been described or filed as exhibits to the Registration Statement
or incorporated therein by reference as permitted by the Rules and
Regulations;
(ix) The Company has all requisite corporate power and
authority to execute and deliver this Agreement and the U.S.
Underwriting Agreement and to perform its obligations hereunder and
thereunder and this Agreement and the U.S. Underwriting Agreement
have each been duly authorized, executed and delivered by the
Company;
(x) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance
by the Company with all of the provisions of this Agreement and the
consummation of the transactions contemplated hereby, including but
not limited to the Reorganization, will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument listed as an
exhibit to the Registration Statement, nor will such actions result
in any violation of the provisions of the certificate of
incorporation or by-laws of the Company or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or
any of its properties or assets; and, except for the registration
of the Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Exchange Act and applicable state securities
laws in connection with the purchase and distribution of the Stock
by the International Managers and the U.S. Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this
Agreement by the Company or the Parent and the consummation of the
transactions contemplated hereby including but not limited to the
Reorganization; and
(xi) Except as described in the Prospectus, to such
counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such
person the right to require the Company to file a registration
statement under the Securities Act with
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<PAGE>
respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in
the securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act.
In rendering such opinion, such counsel may state that its opinion
is limited to matters governed by the Federal laws of the United
States of America and the General Corporation Law Statute of the
State of Delaware. Such counsel shall also have furnished to the
Lead Managers a written statement, addressed to the International
Managers and dated such Delivery Date, in form and substance
satisfactory to the Lead Managers, to the effect that (x) such
counsel has acted as counsel to the Company in connection with the
Reorganization and the preparation of the Registration Statement,
and (y) based on the procedures set forth therein but without
independent check or verification, no facts have come to the
attention of such counsel which lead it to believe that the
Registration Statement, as of the Effective Date, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make
the statements therein not misleading. The foregoing statement may
be qualified by a statement to the effect that such counsel does
not (i) assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement
or the Prospectus or (ii) express any views to the financial
statements and schedules and other financial data contained therein.
(e) Herbert Smith[U.K. Counsel] shall have furnished to the
Lead Managers its written opinion, as United Kingdom counsel to the
Parent, addressed to the Lead Managers and the International
Managers and dated such Delivery Date, in form and substance
reasonably satisfactory to the Lead Managers, to the effect that:
(i) The Parent is a company incorporated and existing
with limited liability under the laws of England.
(ii) The searches made at the Company's Registry in London
on a recent date revealed no order or resolution for the winding up
of the Parent, no notice of appointment of a receiver and no notice
of an administration order. Such opinion may state that such
searches are not capable of revealing whether or not a petition for
an administration order or winding up order has been presented and
that notice of an administration or winding up order made or
resolution passed or receiver appointed may not be filed at the
Companies Registry immediately. Such opinion may further state
that a director of the Parent has certified to such counsel to
19
<PAGE>
the effect that to such director's knowledge no such event had
occurred at a recent date.
(iii) The Parent has all requisite corporate power to
execute and deliver this Agreement and perform its obligations
hereunder.
(iv) The execution and delivery of this Agreement by the
Parent and the performance of its obligations hereunder have been
duly authorized by appropriate corporate action of the Parent.
(v) The choice of law and submission to jurisdiction
clauses contained in this Agreement would be recognized by the High
Court in England such that a final and conclusive money judgment of
the courts of New York properly obtained against the Parent
pursuant to this Agreement otherwise than through fraud or
proceedings opposed to natural justice would be capable of being
enforced in England in sterling save where its enforcement would be
contrary to public policy.
(vi) The execution, delivery and performance by the Parent
of this Agreement will not violate any provision of (i) any English
law or regulation applicable to companies generally or (ii) the
Parent's Memorandum or Articles of Association.
(vii) No authorizations, approvals, consents, licences,
exemptions, filings, registrations, notarizations or other
requirements of or with United Kingdom governmental, judicial or
public bodies or authorities are required in connection with the
execution, delivery or performance of this Agreement. Such opinion
may further state that the issue of stock by the Company pursuant
to this Agreement for full consideration to persons unconnected
(directly or indirectly) with the Parent is covered by the Treasury
general consent 15th March 1988 pursuant to section 765 of the
Income and Corporation Taxes Act 1988.
(viii) No stamp, registration or similar taxes or charges
are payable in England in respect of this Agreement.
(ix) The Parent is the registered holder of the entire
issued share of capital of Securicor Communications Ltd.
(f) The Lead Managers shall have received from Chadbourne &
Parke LLP, counsel for the Underwriters, such opinion or opinions,
dated such Delivery
20
<PAGE>
Date, with respect to the issuance and sale of the Stock, the
Registration Statement, the Prospectus and other related matters as
the Lead Managers may reasonably require, and the Company and the
Parent shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon
such matters.
(g) At the time of execution of this Agreement, the Lead
Managers shall have received from Arthur Andersen LLP a letter, in
form and substance satisfactory to the Lead Managers, addressed to
the Underwriters and dated the date hereof (i) confirming that they
are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of
the date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not
more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and
other matters ordinarily covered by accountants' "comfort letters"
to underwriters in connection with registered public offerings.
(h) With respect to the letter of Arthur Andersen LLP
referred to in the preceding paragraph and delivered to the Lead
Managers concurrently with the execution of this Agreement (the
"initial letter"), the Company shall have furnished to the Lead
Managers a letter (the "bring-down letter") of such accountants,
addressed to the Underwriters and dated such Delivery Date (i)
confirming that they are independent public accountants within the
meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of
accountants under Rule 201 of Regulation S-X of the Commission,
(ii) stating, as of the date of the bring-down letter (or, with
respect to matters involving changes or developments since the
respective dates as of which specified financial information is
given in the Prospectus, as of a date not more than five days prior
to the date of the bring-down letter), the conclusions and findings
of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all
material respects the conclusions and findings set forth in the
initial letter.
(i) The Company and the Parent shall have furnished to the
Lead Managers certificates, dated such Delivery Date, of their
respective Chairman of the Board, President or a Vice President and
their chief financial officers stating that:
21
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(i) The representations, warranties and agreements of the
Company and the Parent in Section 1 are true and correct as of such
Delivery Date; the Company has complied with all its agreements
contained herein; and the conditions set forth in Sections 8(a) and
8(i) have been fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of the
Effective Date, the Registration Statement and Prospectus did not
include any untrue statement of a material fact and did not omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) since the
Effective Date no event has occurred which should have been set
forth in a supplement or amendment to the Registration Statement or
the Prospectus and is not so set forth.
(j) (i) Neither the Company nor its subsidiary shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there
shall not have been any change in the capital stock or long-term
debt of the Company or its subsidiary or any change, or any
development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders'
equity, results of operations, properties, assets, liabilities,
future prospects or business of the Company and its subsidiary,
otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii),
is, in the judgment of the Lead Managers, so material and adverse
as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Stock being delivered on
such Delivery Date on the terms and in the manner contemplated in
the Prospectus.
(k) Subsequent to the execution and delivery of this
Agreement there shall not have occurred any of the following: (i)
trading in securities generally on the New York Stock Exchange or
the American Stock Exchange or in the over-the-counter market, or
trading in any securities of the Company on any exchange or in the
over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such
market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii)
a banking moratorium shall have been declared by United States
Federal or state authorities, (iii) the United States shall have
become
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<PAGE>
engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a
declaration of a national emergency or war by the United States or
(iv) there shall have occurred such a material adverse change in
general economic, political or financial conditions (or the effect
of international conditions on the financial markets in the United
States shall be such), the effect of which, in any such case
described in clause (i), (ii), (iii) or (iv), is to make it, in the
judgment of a majority in interest of the several International
Managers, impracticable or inadvisable to proceed with the public
offering or delivery of the Stock being delivered on such Delivery
Date on the terms and in the manner contemplated in the Prospectus.
(l) The Nasdaq National Market shall have approved the Stock
for inclusion, subject only to official notice of issuance and
evidence of satisfactory distribution.
(m) The closing under the U.S. Underwriting Agreement shall
have occurred concurrently with the Closing hereunder on the
Delivery Date.
(n) You shall have been furnished such additional documents
and certificates as you or counsel for the International Managers
may reasonably request related to this Agreement and the
transactions contemplated hereby.
All opinions, letters, evidence and certificates
mentioned above or elsewhere in this Agreement shall be deemed to
be in compliance with the provisions hereof only if they are in
form and substance reasonably satisfactory to counsel for the
International Managers.
9. Indemnification and Contribution.
(a) The Company and the Parent, severally and jointly, shall
indemnify and hold harmless each International Manager, its
officers and employees and each person, if any, who controls any
International Manager within the meaning of the Securities Act,
from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not
limited to, any loss, claim, damage, liability or action relating
to purchases and sales of Stock), to which that International
Manager, officer, employee or controlling person may become
subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or
supplement thereto or (B) in any blue sky application or other
document prepared or executed by the Company (or based upon any
written information furnished
23
<PAGE>
by the Company) specifically for the purpose of qualifying any or
all of the Stock under the securities laws of any state or other
jurisdiction (any such application, document or information being
hereinafter called a "Blue Sky Application"), (ii) the omission or
alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the
statements therein not misleading or (iii) any act or failure to
act or any alleged act or failure to act by any International
Manager in connection with, or relating in any manner to, the Stock
or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action
arising out of or based upon matters covered by clause (i) or (ii)
above (provided that neither the Company nor the Parent shall be
liable under this clause (iii) to the extent that it is determined
in a final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly from any
such acts or failures to act undertaken or omitted to be taken by
such International Manager through its gross negligence or willful
misconduct), and shall reimburse each International Manager and
each such officer, employee or controlling person promptly upon
demand for any legal or other expenses reasonably incurred by that
International Manager, officer, employee or controlling person in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that neither the Company
nor the Parent shall be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such
amendment or supplement, or in any Blue Sky Application, in
reliance upon and in conformity with written information concerning
such International Manager furnished to the Company through the
Lead Managers by or on behalf of any International Manager
specifically for inclusion therein. The foregoing indemnity
agreement is in addition to any liability which the Company or the
Parent may otherwise have to any International Manager or to any
officer, employee or controlling person of that International
Manager.
(b) Each International Manager, severally and not jointly,
shall indemnify and hold harmless the Company, its officers and
employees, each of its directors (including any person who, with
his or her consent, is named in the Registration Statement as about
to become a director of the Company), and each person, if any, who
controls the Company within the meaning of the Securities Act, from
and against any loss, claim, damage or liability, joint or several,
or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a
24
<PAGE>
material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the
omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the
extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with written information concerning such International
Manager furnished to the Company through the Lead Managers by or on
behalf of that International Manager specifically for inclusion
therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or
controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability
or action as such expenses are incurred. The foregoing indemnity
agreement is in addition to any liability which any International
Manager may otherwise have to the Company or any such director,
officer, employee or controlling person.
(c) Promptly after receipt by an indemnified party under
this Section 9 of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof
is to be made against the indemnifying party under this Section 9,
notify the indemnifying party in writing of the claim or the
commencement of that action; provided, however, that the failure to
notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 9 except to the
extent it has been materially prejudiced by such failure and,
provided further, that the failure to notify the indemnifying party
shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 9. If any such
claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying
party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party. After notice from
the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 9
for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that the Lead
Managers shall have the right to employ counsel to represent
jointly the Lead Managers and those other International Managers
and their respective officers, employees and controlling persons
who may be subject to liability arising out of any claim in respect
of which indemnity may be sought by the International Managers
against the Company or the Parent under this Section 9 if, in the
reasonable judgment of the Lead Managers, it is advisable for the
Lead Managers and those
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<PAGE>
International Managers, officers, employees and controlling persons
to be jointly represented by separate counsel, and in that event
the fees and expenses of such separate counsel shall be paid by the
Company or the Parent. No indemnifying party shall (i) without the
prior written consent of the indemnified parties (which consent
shall not be unreasonably withheld), settle or compromise or
consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or
not the indemnified parties are actual or potential parties to such
claim or action) unless, such settlement, compromise or consent
includes an unconditional release of each indemnified party from
all liability arising out of such claim, action, suit or
proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with the consent of the
indemnifying party or if there be a final judgment of the plaintiff
in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 9
shall for any reason be unavailable to or insufficient to hold
harmless an indemnified party under Section 9(a) or 9(b) in respect
of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall,
in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of
such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect
the relative benefits received by the Company and the Parent on the
one hand and the Underwriters on the other from the offering of the
Stock or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Parent on
the one hand and the International Managers on the other with
respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well
as any other relevant equitable considerations. The relative
benefits received by the Company and the Parent on the one hand and
the International Managers on the other with respect to such
offering shall be deemed to be in the same proportion as the total
net proceeds from the International Stock purchased under this
Agreement received by the Company and the Parent, on the one hand,
and the total underwriting discounts and commissions received by
the International Managers with respect to the shares of the
International Stock purchased under this Agreement, on the other
hand, bear to the total gross proceeds from the offering of the
shares of the International Stock under this Agreement, in each
case as set forth in the table on the cover page of the Prospectus.
The relative fault shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or omission
or alleged
26
<PAGE>
omission to state a material fact relates to information supplied
by the Company, the Parent or the International Managers, the
intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company, the Parent and the International Managers
agree that it would not be just and equitable if contributions
pursuant to this Section were to be determined by pro rata
allocation (even if the International Managers were treated as one
entity for such purpose) or by any other method of allocation which
does not take into account the equitable considerations referred to
herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in
respect thereof, referred to above in this Section shall be deemed
to include, for purposes of this Section 9(d), any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 9(d), no
International Manager shall be required to contribute any amount in
excess of the amount by which the total price at which the Stock
underwritten by it and distributed to the public was offered to the
public exceeds the amount of any damages which such International
Manager has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such
fraudulent misrepresentation. The International Managers'
obligations to contribute as provided in this Section 9(d) are
several in proportion to their respective underwriting obligations
and not joint.
(e) The International Managers severally confirm and the
Company acknowledges that the statements with respect to the public
offering of the Stock by the International Managers set forth on
the cover page of, the legends concerning stabilization and passive
market making on the inside front cover page of, and, except for
the 14th and 15th paragraphs thereunder, the text appearing under
the caption "Underwriting" in, the Prospectus are correct and
constitute the only information concerning such International
Managers furnished in writing to the Company by or on behalf of the
International Managers specifically for inclusion in the
Registration Statement and the Prospectus.
10. Defaulting International Managers. If, on either Delivery
Date, any International Manager defaults in the performance of its
obligations under this Agreement, the remaining non-defaulting
International Managers shall be obligated to purchase the Stock
which the defaulting International Manager agreed but failed to
purchase on such Delivery Date in the respective proportions which
the number of shares of the Firm Stock set opposite the name of
each remaining non-defaulting International Manager in Schedule 1
hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining non-defaulting
International Managers in Schedule 1 hereto; provided,
27
<PAGE>
however, that the remaining non-defaulting International Managers
shall not be obligated to purchase any of the Stock on such
Delivery Date if the total number of shares of the Stock which the
defaulting International Manager or International Managers agreed
but failed to purchase on such date exceeds 9.09% of the total
number of shares of the Stock to be purchased on such Delivery
Date, and any remaining non-defaulting International Manager shall
not be obligated to purchase more than 110% of the number of shares
of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 2. If the foregoing maximums are
exceeded, the remaining non-defaulting International Managers, or
those other underwriters satisfactory to the Lead Managers who so
agree, shall have the right, but shall not be obligated, to
purchase, in such proportion as may be agreed upon among them, all
the Stock to be purchased on such Delivery Date. If the remaining
International Managers or other underwriters satisfactory to the
Lead Managers do not elect to purchase the shares which the
defaulting International Manager or International Managers agreed
but failed to purchase on such Delivery Date, this Agreement (or,
with respect to the Second Delivery Date, the obligation of the
International Managers to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any
non-defaulting International Manager or the Company or the Parent,
except that the Company and the Parent will continue to be liable
for the payment of expenses to the extent set forth in Sections 7
and 12. As used in this Agreement, the term "International
Manager" includes, for all purposes of this Agreement unless the
context requires otherwise, any party not listed in Schedule 1
hereto who, pursuant to this Section 10, purchases Firm Stock which
a defaulting International Manager agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting
International Manager of any liability it may have to the Company
and the Parent for damages caused by its default. If other
underwriters are obligated or agree to purchase the Stock of a
defaulting or withdrawing International Manager, either the Lead
Managers or the Company may postpone the Delivery Date for up to
seven full business days in order to effect any changes that in the
opinion of counsel for the Company or counsel for the International
Managers may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
11. Termination. The obligations of the International Managers
hereunder may be terminated by the Lead Managers by notice given to
and received by the Company prior to delivery of and payment for
the Firm Stock if, prior to that time, any of the events described
in Sections 8(i) or 8(j), shall have occurred or if the
International Managers shall decline to purchase the Stock for any
reason permitted under this Agreement.
12. Reimbursement of International Managers' Expenses. If (a)
the Company shall fail to tender the Stock for delivery to the
International Managers by
28
<PAGE>
reason of any failure, refusal or inability on the part of the
Company or the Parent to perform any agreement on its part to be
performed, or because any other condition of the International
Managers' obligations hereunder required to be fulfilled by the
Company or the Parent is not fulfilled, the Company and the Parent,
severally and jointly, will reimburse the International Managers
for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the International Managers in
connection with this Agreement and the proposed purchase of the
Stock, and upon demand the Company and the Parent, severally and
jointly, shall pay the full amount thereof to the Lead Managers.
If this Agreement is terminated pursuant to Section 10 by reason of
the default of one or more International Managers, neither the
Company nor the Parent shall be obligated to reimburse any
defaulting International Manager on account of those expenses.
13. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the International Managers, shall be delivered or
sent by mail, telex or facsimile transmission to Lehman Brothers
International (Europe), 1 Broadgate, 4th Floor, London EC2M 7HA
England, with a copy, in the case of any notice pursuant to Section
9(c), to the Director of Litigation, Office of the General Counsel,
Lehman Brothers Inc., 3 World Financial Center, 10th Floor, New
York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set
forth in the Registration Statement, Attention: Andrew P. Maunder
(Fax: 609-778-0836); and
(c) if to the Parent, shall be delivered or sent by mail,
telex or facsimile transmission to Security Services plc, [Address],
Attention: [_____________] (Fax:________________);
provided, however, that any notice to an International Manager
pursuant to Section 9(c) shall be delivered or sent by mail, telex
or facsimile transmission to such International Manager at its
address set forth in its acceptance telex to the Lead Managers,
which address will be supplied to any other party hereto by the
Lead Managers upon request. Any such statements, requests, notices
or agreements shall take effect at the time of receipt thereof. The
Company and the Parent shall be entitled to act and rely upon any
request, consent, notice or agreement given or made on behalf of
the International Managers by Lehman Brothers Inc. on behalf of the
Lead Managers.
29
<PAGE>
14. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the International
Managers, the Company, the Parent and their respective
representatives and successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons,
except that (A) the representations, warranties, indemnities and
agreements of the Company and the Parent contained in this
Agreement shall also be deemed to be for the benefit of the person
or persons, if any, who control any International Manager within
the meaning of Section 15 of the Securities Act and (B) the
indemnity agreement of the International Managers contained in
Section 9(b) of this Agreement shall be deemed to be for the
benefit of directors of the Company, officers of the Company who
have signed the Registration Statement and any person controlling
the Company within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section
13, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
15. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Parent and the
International Managers contained in this Agreement or made by or on
behalf on them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Stock and shall remain
in full force and effect, regardless of any investigation made by
or on behalf of any of them or any person controlling any of them.
16. Definition of the Terms "Business Day" and "Subsidiary".
For purposes of this Agreement, (a) "business day" means any day on
which the New York Stock Exchange, Inc. is open for trading and (b)
"subsidiary" has the meaning set forth in Rule 405 of the Rules and
Regulations.
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of New York applicable to
agreements made and performed in the State of New York without
regard to the conflict of laws provision.
18. Consent to Jurisdiction. Each party irrevocably agrees that
any legal suit, action or proceeding arising out of or based upon
this Agreement or the transactions contemplated hereby ("Related
Proceedings") may be instituted in the federal courts of the United
States of America located in the City of New York or the courts of
the State of New York in each case located in the Borough of
Manhattan in the City of New York (collectively, the "Specified
Courts"), and irrevocably submits to the exclusive jurisdiction
(except for proceedings instituted in regard to the enforcement of
a judgment of any such court (a "Related Judgment"), as to which
such jurisdiction is non-exclusive) of such
30
<PAGE>
courts in any such suit, action or proceeding. The parties further
agree that service of any process, summons, notice or document by
mail to such party's address set forth above shall be effective
service of process for any lawsuit, action or other proceeding
brought in any such court. The parties hereby irrevocably and
unconditionally waive any objection to the laying of venue of any
lawsuit, action or other proceeding in the Specified Courts, and
hereby further irrevocably and unconditionally waive and agree not
to plead or claim in any such court that any such lawsuit, action
or other proceeding brought in any such court has been brought in
an inconvenient forum. Each party not located in the United States
hereby irrevocably appoints CT Corporation System, which currently
maintains a New York City office at 1633 Broadway, New York, New
York 10019, United States of America, as its agent to receive
service of process or other legal summons for purposes of any such
action or proceeding that may be instituted in any state or federal
court in the City and State of New York.
19. Waiver of Immunity. With respect to any Related Proceeding,
each party irrevocably waives, to the fullest extent permitted by
applicable law, all immunity (whether on the basis of sovereignty
or otherwise) from jurisdiction, service of process, attachment
(both before and after judgment) and execution to which it might
otherwise be entitled in the Specified Courts, and with respect to
any Related Judgment, each party waives any such immunity in the
Specified Courts or any other court of competent jurisdiction, and
will not raise or claim or cause to be pleaded any such immunity at
or in respect of any such Related Proceeding or Related Judgment,
including, without limitation, any immunity pursuant to the United
States Foreign Sovereign Immunities Act of 1976, as amended.
20. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the
executed counterparts shall each be deemed to be an original but
all such counterparts shall together constitute one and the same
instrument.
21. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement among
the Company, the Parent and the International Managers, please
indicate your acceptance in the space provided for that purpose
below.
Very truly yours,
AXIOM INC.
31
<PAGE>
By:
------------------------------------
Name:
Title:
SECURITY SERVICES PLC
By:
------------------------------------
Name:
Title:
Accepted:
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
J.P. MORGAN SECURITIES LTD.
For themselves and as Lead Managers of the several
International Managers named in Schedule 1 hereto
By: LEHMAN BROTHERS INTERNATIONAL (EUROPE)
By:
-------------------------------
Authorized Representative
32
<PAGE>
SCHEDULE 1
International Managers Number of
Shares
Lehman Brothers International (Europe)............
J.P. Morgan Securities Ltd. ......................
----------
Total.......................................
<PAGE>
LAW OFFICES
WOLF, BLOCK, SCHORR and SOLIS-COHEN
TWELFTH FLOOR PACKARD BUILDING
111 SOUTH 15TH STREET
PHILADELPHIA, PA 19102-2678
(215) 977-2000
facsimile: (215) 977-2334
July 2, 1997
Axiom Inc.
351 New Albany Road
Moorestown, NJ 08057-1177
Re: Registration Statement Under
The Securities Act of 1933 on Form S-1,
File No. 333-25439 (the "Registration Statement")
Dear Sirs:
As counsel to Axiom Inc, a Delaware corporation (the "Company"), we
have assisted in the preparation of the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, covering 2,990,000 shares of the Company's Common Stock, par value
$0.01 per share, consisting of 2,600,000 shares (the"Primary Shares") which
will be sold to the U.S. Underwriters and International Managers named in the
Registration Statement pursuant to the U.S. Underwriting Agreement and the
International Underwriting Agreement, each filed as an exhibit to the
Registration Statement (collectively, the "Underwriting Agreements"), and an
aggregate of 390,000 shares (the "Option Shares") for which the U.S.
Underwriters and International Managers have options to purchase from the
Company solely to cover over-allotments.
In this connection, we have examined and considered the original or
copies, certified or otherwise identified to our satisfaction, of the
Company's Amended and Restated Certificate of Incorporation, its Amended and
Restated Bylaws, resolutions of its Board of Directors and such other
documents and corporate records relating to the Company and the issuance and
sale of the Primary Shares and Option Shares as we have deemed appropriate
for purposes of rendering this opinion.
In all examinations of documents, instruments and other pages, we
have assumed the genuineness of all signatures on original and certified
documents and the conformity to original and certified documents of all
copies submitted to us as conformed, photostat or other copies. As to
matters of fact which have not been independently established, we have relied
upon representations of officers of the Company.
Based upon the foregoing examination and the information thus
supplied, it is our opinion that when the Primary Shares and Option Shares
are sold to and paid for by the
<PAGE>
Axiom Inc.
July 2, 1997
Page 2
U.S. Underwriters and the International Managers pursuant to the terms of the
Underwriting Agreements, such shares will be legally issued, fully paid and
non-assessable.
We hereby expressly consent to the reference to our Firm in the
Registration Statement under the Prospectus caption "Legal Matters," and to
the inclusion of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ WOLF, BLOCK SCHORR and SOLIS-COHEN
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Axiom Inc.
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Philadelphia, PA
July 3, 1997
